UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________

FORM 10-Q

____________________________

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 29,~~September 27, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-11796

____________________________

Masonite International Corporation

(Exact name of registrant as specified in its charter)

____________________________


British Columbia, Canada						98-0377314
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2771 Rutherford Road

Concord, Ontario L4K 2N6 Canada

(Address of principal executive offices)

(800) 895-2723

(Registrant's telephone number, including area code)

____________________________

Securities registered pursuant to Section 12(b) of the Act:

Common Stock (no par value)

DOOR

New York Stock Exchange

(Title of class)

(Trading symbol)

(Name of exchange on which registered)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

The registrant had outstanding ~~24,449,287~~24,502,967 shares of Common Stock, no par value, as of ~~May 1,~~October 30, 2020.

MASONITE INTERNATIONAL CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

~~March 29,~~September 27, 2020

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the federal securities laws, including, without limitation, statements concerning the conditions in our industry, our operations, our economic performance and financial condition, including, in particular, statements relating to our business and growth strategy and product development efforts under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as "may," "might," "could," "will," "would," "should," "expect," "believes," "outlook," "predict," "forecast," "objective," "remain," "anticipate," "estimate," "potential," "continue," "plan," "project," "targeting," and other similar expressions. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. These risks and uncertainties include, without limitation, those identified under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 29, 2019, subsequent reports on Form 10-Q, and elsewhere in this Quarterly Report.

The following list represents some, but not necessarily all, of the factors that could cause actual results to differ from historical results or those anticipated or predicted by these forward-looking statements:

•downward trends in our end markets and in economic conditions;

•scale and scope of the current coronavirus ("COVID-19") pandemic and its impact on our operations, customer demand and supply chain;

•reduced levels of residential new construction; residential repair, renovation and remodeling; and non-residential building construction activity due to increases in mortgage rates, changes in mortgage interest deductions and related tax changes and reduced availability of financing;

•competition;

•the continued success of, and our ability to maintain relationships with, certain key customers in light of price increases and customer concentration and consolidation;

•tariffs and evolving trade policy and friction between the United States and other countries, including China, and the impact of anti-dumping and countervailing trade cases;

•increases in prices of raw materials and fuel;

•increases in labor costs, the availability of labor or labor relations (i.e., disruptions, strikes or work stoppages);

•our ability to manage our operations including anticipating demand for our products, managing disruptions in our operations, managing manufacturing realignments (including related restructuring charges), managing customer credit risk and successful integration of acquisitions;

•the continuous operation of our information technology and enterprise resource planning systems and management of potential cyber security threats and attacks;

•our ability to generate sufficient cash flows to fund our capital expenditure requirements, to meet our pension obligations, and to meet our debt service obligations, including our obligations under our senior notes and our asset-based revolving credit facility ("ABL Facility");

•political, economic and other risks that arise from operating a multinational business;

•uncertainty relating to the United Kingdom's exit from the European Union;

•fluctuating exchange and interest rates;

•our ability to innovate and keep pace with technological developments;

•product liability claims and product recalls;

•retention of key management personnel;

•limitations on operating our business as a result of covenant restrictions under our existing and future indebtedness, including our senior notes and our ABL Facility; and

•environmental and other government regulations, including the United States Foreign Corrupt Practices Act ("FCPA"), and any changes in such regulations.

We caution you that the foregoing list of important factors is not exclusive. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Quarterly Report may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

MASONITE INTERNATIONAL CORPORATION

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands of U.S. dollars, except per share amounts)

(Unaudited)


		Three Months Ended							Three Months Ended				Nine Months Ended
		March 29, 2020		March 31, 2019			September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Net sales	Net sales	$	551,228	$	530,311	Net sales	$	587,652	$	552,192	$	1,638,538	$	1,645,446
Cost of goods sold	Cost of goods sold	416,947		418,207		Cost of goods sold	427,331		426,588		1,207,582		1,278,808
Gross profit	Gross profit	134,281		112,104		Gross profit	160,321		125,604		430,956		366,638
Selling, general and administration expenses	Selling, general and administration expenses	80,333		78,100		Selling, general and administration expenses	118,354		77,573		272,077		233,815
Restructuring costs	Restructuring costs	1,941		3,740		Restructuring costs	1,895		1,994		4,984		7,095
Asset impairment	Asset impairment	—		10,625		Asset impairment	51,515		0		51,515		13,767
Loss on disposal of subsidiaries	Loss on disposal of subsidiaries	—		4,605		Loss on disposal of subsidiaries	0		0		2,091		4,605
Operating income		52,007		15,034
Operating income (loss)						Operating income (loss)	(11,443)		46,037		100,289		107,356
Interest expense, net	Interest expense, net	11,282		11,127		Interest expense, net	11,805		11,909		34,911		34,393
Loss on extinguishment of debt						Loss on extinguishment of debt	0		14,523		0		14,523
Other expense (income), net						Other expense (income), net	(1,953)		(824)		(3,350)		(2,410)
Income (loss) before income tax expense						Income (loss) before income tax expense	(21,295)		20,429		68,728		60,850
Income tax expense (benefit)						Income tax expense (benefit)	(804)		4,334		23,522		14,685
Net income (loss)						Net income (loss)	(20,491)		16,095		45,206		46,165
Less: net income attributable to non-controlling interests						Less: net income attributable to non-controlling interests	1,275		1,126		3,090		3,165
Net income (loss) attributable to Masonite						Net income (loss) attributable to Masonite	$	(21,766)	$	14,969	$	42,116	$	43,000

Other expense (income), net		49		(1,130)
Income before income tax expense		40,676		5,037
Income tax expense		9,639		58
Net income		31,037		4,979
Less: net income attributable to non-controlling interests		1,152		1,190
Net income attributable to Masonite		$	29,885	$	3,789

Basic earnings per common share attributable to Masonite		$	1.20	$	0.15
Diluted earnings per common share attributable to Masonite		$	1.19	$	0.15
Basic earnings (loss) per common share attributable to Masonite						Basic earnings (loss) per common share attributable to Masonite	$	(0.89)	$	0.60	$	1.71	$	1.71
Diluted earnings (loss) per common share attributable to Masonite						Diluted earnings (loss) per common share attributable to Masonite	$	(0.89)	$	0.59	$	1.69	$	1.68

Comprehensive income (loss):	Comprehensive income (loss):					Comprehensive income (loss):
Net income		$	31,037	$	4,979
Net income (loss)						Net income (loss)	$	(20,491)	$	16,095	$	45,206	$	46,165
Other comprehensive income (loss):	Other comprehensive income (loss):					Other comprehensive income (loss):
Foreign currency translation gain (loss)	Foreign currency translation gain (loss)	(38,687)		13,991		Foreign currency translation gain (loss)	14,137		(12,733)		(9,818)		(3,920)

Amortization of actuarial net losses	Amortization of actuarial net losses	173		404		Amortization of actuarial net losses	173		404		518		1,211
Income tax expense related to other comprehensive income		(89)		(93)
Income tax (expense) benefit related to other comprehensive income (loss)						Income tax (expense) benefit related to other comprehensive income (loss)	(25)		(114)		(142)		(299)
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:	(38,603)		14,302		Other comprehensive income (loss), net of tax:	14,285		(12,443)		(9,442)		(3,008)
Comprehensive income (loss)	Comprehensive income (loss)	(7,566)		19,281		Comprehensive income (loss)	(6,206)		3,652		35,764		43,157
Less: comprehensive income attributable to non-controlling interests		573		1,406
Less: comprehensive income (loss) attributable to non-controlling interests						Less: comprehensive income (loss) attributable to non-controlling interests	1,481		1,004		2,947		3,391
Comprehensive income (loss) attributable to Masonite	Comprehensive income (loss) attributable to Masonite	$	(8,139)	$	17,875	Comprehensive income (loss) attributable to Masonite	$	(7,687)	$	2,648	$	32,817	$	39,766

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Condensed Consolidated Balance Sheets

(In thousands of U.S. dollars, except share amounts)

(Unaudited)


ASSETS	ASSETS	March 29, 2020		December 29, 2019		ASSETS	September 27, 2020		December 29, 2019
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	114,375	$	166,964	Cash and cash equivalents	$	300,797	$	166,964
Restricted cash	Restricted cash	10,644		10,644		Restricted cash	10,560		10,644
Accounts receivable, net	Accounts receivable, net	303,111		276,208		Accounts receivable, net	321,504		276,208
Inventories, net	Inventories, net	240,975		242,230		Inventories, net	243,150		242,230
Prepaid expenses	Prepaid expenses	33,137		33,190		Prepaid expenses	29,965		33,190
Income taxes receivable	Income taxes receivable	3,492		4,819		Income taxes receivable	2,360		4,819
Total current assets	Total current assets	705,734		734,055		Total current assets	908,336		734,055
Property, plant and equipment, net	Property, plant and equipment, net	612,304		625,585		Property, plant and equipment, net	609,490		625,585
Operating lease right-of-use assets	Operating lease right-of-use assets	123,925		121,367		Operating lease right-of-use assets	127,506		121,367
Investment in equity investees	Investment in equity investees	17,011		16,100		Investment in equity investees	13,797		16,100
Goodwill	Goodwill	179,386		184,192		Goodwill	131,827		184,192
Intangible assets, net	Intangible assets, net	171,684		184,532		Intangible assets, net	167,631		184,532
Deferred income taxes	Deferred income taxes	24,355		25,945		Deferred income taxes	19,455		25,945
Other assets	Other assets	43,650		44,808		Other assets	49,034		44,808
Total assets	Total assets	$	1,878,049	$	1,936,584	Total assets	$	2,027,076	$	1,936,584

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	97,501	$	84,912	Accounts payable	$	95,231	$	84,912
Accrued expenses	Accrued expenses	145,342		180,405		Accrued expenses	235,006		180,405
Income taxes payable	Income taxes payable	1,537		2,350		Income taxes payable	11,795		2,350
Total current liabilities	Total current liabilities	244,380		267,667		Total current liabilities	342,032		267,667
Long-term debt	Long-term debt	791,190		790,984		Long-term debt	791,882		790,984

Long-term operating lease liabilities	Long-term operating lease liabilities	112,691		110,497		Long-term operating lease liabilities	118,354		110,497
Deferred income taxes	Deferred income taxes	88,504		83,465		Deferred income taxes	74,389		83,465
Other liabilities	Other liabilities	45,028		47,109		Other liabilities	54,917		47,109
Total liabilities	Total liabilities	1,281,793		1,299,722		Total liabilities	1,381,574		1,299,722
Commitments and Contingencies (Note 7)	Commitments and Contingencies (Note 7)					Commitments and Contingencies (Note 7)
Equity:	Equity:					Equity:
Share capital: unlimited shares authorized, no par value, 24,446,987 and 24,869,921 shares issued and outstanding as of March 29, 2020, and December 29, 2019, respectively		551,983		558,514
Share capital: unlimited shares authorized, no par value, 24,502,967 and 24,869,921 shares issued and outstanding as of September 27, 2020, and December 29, 2019, respectively						Share capital: unlimited shares authorized, no par value, 24,502,967 and 24,869,921 shares issued and outstanding as of September 27, 2020, and December 29, 2019, respectively	554,673		558,514
Additional paid-in capital	Additional paid-in capital	212,826		216,584		Additional paid-in capital	219,307		216,584
Accumulated deficit		(12,203)		(20,047)
Accumulated earnings (deficit)						Accumulated earnings (deficit)	28		(20,047)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(168,193)		(130,169)		Accumulated other comprehensive loss	(139,468)		(130,169)
Total equity attributable to Masonite	Total equity attributable to Masonite	584,413		624,882		Total equity attributable to Masonite	634,540		624,882
Equity attributable to non-controlling interests	Equity attributable to non-controlling interests	11,843		11,980		Equity attributable to non-controlling interests	10,962		11,980
Total equity	Total equity	596,256		636,862		Total equity	645,502		636,862
Total liabilities and equity	Total liabilities and equity	$	1,878,049	$	1,936,584	Total liabilities and equity	$	2,027,076	$	1,936,584

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Condensed Consolidated Statements of Changes in Equity

(In thousands of U.S. dollars, except share amounts)

(Unaudited)

Three Months Ended
March 29, 2020 March 31, 2019
Total equity, beginning of period $ 636,862 $ 622,305
Share capital:
Beginning of period 558,514 575,207
Common shares issued for delivery of share based awards 5,490 6,152
Common shares issued under employee stock purchase plan 708 517
Common shares repurchased and retired (12,729) (14,386)
End of period 551,983 567,490
Additional paid-in capital:
Beginning of period 216,584 218,988
Share based compensation expense 3,470 2,680
Common shares issued for delivery of share based awards (5,490) (6,152)
Common shares withheld to cover income taxes payable due to delivery of share based awards (1,427) (1,090)
Common shares issued under employee stock purchase plan (311) (132)
End of period 212,826 214,294
Accumulated deficit:
Beginning of period (20,047) (30,836)
Net income attributable to Masonite 29,885 3,789
Common shares repurchased and retired (22,041) (18,805)
End of period (12,203) (45,852)
Accumulated other comprehensive loss:
Beginning of period (130,169) (152,919)
Other comprehensive income (loss) attributable to Masonite, net of tax (38,024) 14,086
End of period (168,193) (138,833)
Equity attributable to non-controlling interests:
Beginning of period 11,980 11,865
Net income attributable to non-controlling interests 1,152 1,190
Other comprehensive income (loss) attributable to non-controlling interests, net of tax (579) 216
Dividends to non-controlling interests (710) —
End of period 11,843 13,271
Total equity, end of period $ 596,256 $ 610,370
Common shares outstanding:
Beginning of period 24,869,921 25,835,664
Common shares issued for delivery of share based awards 134,911 116,252
Common shares issued under employee stock purchase plan 9,426 9,036
Common shares repurchased and retired (567,271) (646,102)
End of period 24,446,987 25,314,850


	Three Months Ended				Nine Months Ended
	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Total equity, beginning of period	$	646,245	$	614,571	$	636,862	$	622,305
Share capital:
Beginning of period	553,766		561,543		558,514		575,207
Common shares issued for delivery of share based awards	310		329		7,583		7,412
Common shares issued under employee stock purchase plan	597		528		1,305		1,045
Common shares repurchased and retired	0		(4,374)		(12,729)		(25,638)
End of period	554,673		558,026		554,673		558,026
Additional paid-in capital:
Beginning of period	213,814		215,418		216,584		218,988
Share based compensation expense	6,299		3,695		13,509		8,468
Common shares issued for delivery of share based awards	(310)		(329)		(7,583)		(7,412)
Common shares withheld to cover income taxes payable due to delivery of share based awards	(356)		(326)		(2,752)		(1,454)
Common shares issued under employee stock purchase plan	(140)		(47)		(451)		(179)
End of period	219,307		218,411		219,307		218,411
Accumulated earnings (deficit):
Beginning of period	21,794		(30,225)		(20,047)		(30,836)
Net income (loss) attributable to Masonite	(21,766)		14,969		42,116		43,000
Common shares repurchased and retired	0		(5,325)		(22,041)		(32,745)
End of period	28		(20,581)		28		(20,581)
Accumulated other comprehensive loss:
Beginning of period	(153,547)		(143,832)		(130,169)		(152,919)
Other comprehensive income (loss) attributable to Masonite, net of tax	14,079		(12,321)		(9,299)		(3,234)
End of period	(139,468)		(156,153)		(139,468)		(156,153)
Equity attributable to non-controlling interests:
Beginning of period	10,418		11,667		11,980		11,865
Net income attributable to non-controlling interests	1,275		1,126		3,090		3,165
Other comprehensive income (loss) attributable to non-controlling interests, net of tax	206		(122)		(143)		226
Dividends to non-controlling interests	(937)		(750)		(3,965)		(3,335)
End of period	10,962		11,921		10,962		11,921
Total equity, end of period	$	645,502	$	611,624	$	645,502	$	611,624

Common shares outstanding:
Beginning of period	24,487,121		25,019,940		24,869,921		25,835,664
Common shares issued for delivery of share based awards	8,767		13,347		183,812		142,475
Common shares issued under employee stock purchase plan	7,079		9,904		16,505		18,940
Common shares repurchased and retired	0		(194,927)		(567,271)		(1,148,815)
End of period	24,502,967		24,848,264		24,502,967		24,848,264

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Condensed Consolidated Statements of Cash Flows

(In thousands of U.S. dollars)

(Unaudited)


		Three Months Ended							Nine Months Ended
Cash flows from operating activities:	Cash flows from operating activities:	March 29, 2020		March 31, 2019		Cash flows from operating activities:	September 27, 2020		September 29, 2019
Net income	Net income	$	31,037	$	4,979	Net income	$	45,206	$	46,165
Adjustments to reconcile net income to net cash flow provided by operating activities:	Adjustments to reconcile net income to net cash flow provided by operating activities:					Adjustments to reconcile net income to net cash flow provided by operating activities:
Loss on disposal of subsidiaries	Loss on disposal of subsidiaries	—		4,605		Loss on disposal of subsidiaries	2,091		4,605

Loss on extinguishment of debt						Loss on extinguishment of debt	0		14,523
Depreciation	Depreciation	16,018		18,285		Depreciation	50,742		52,845
Amortization	Amortization	6,459		7,597		Amortization	17,900		21,980
Share based compensation expense	Share based compensation expense	3,470		2,680		Share based compensation expense	13,509		8,468
Deferred income taxes	Deferred income taxes	6,160		(3,708)		Deferred income taxes	(2,806)		4,914
Unrealized foreign exchange loss (gain)	Unrealized foreign exchange loss (gain)	94		272		Unrealized foreign exchange loss (gain)	(83)		539
Share of income from equity investees, net of tax	Share of income from equity investees, net of tax	(911)		(898)		Share of income from equity investees, net of tax	(1,972)		(2,479)

Dividend from equity investee						Dividend from equity investee	4,275		0
Pension and post-retirement funding, net of expense	Pension and post-retirement funding, net of expense	(1,900)		(1,661)		Pension and post-retirement funding, net of expense	(3,447)		(5,789)
Non-cash accruals and interest	Non-cash accruals and interest	427		(562)		Non-cash accruals and interest	1,268		(309)
Loss on sale of property, plant and equipment	Loss on sale of property, plant and equipment	1,622		2,913		Loss on sale of property, plant and equipment	3,629		4,940
Asset impairment	Asset impairment	—		10,625		Asset impairment	51,515		13,767
Changes in assets and liabilities, net of acquisitions:	Changes in assets and liabilities, net of acquisitions:					Changes in assets and liabilities, net of acquisitions:
Accounts receivable	Accounts receivable	(37,990)		(6,587)		Accounts receivable	(51,071)		(28,921)
Inventories	Inventories	(5,388)		(5,902)		Inventories	(3,950)		(6,038)
Prepaid expenses	Prepaid expenses	(491)		1,986		Prepaid expenses	2,823		677
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(15,163)		(16,193)		Accounts payable and accrued expenses	69,865		12,105
Other assets and liabilities	Other assets and liabilities	2,602		80		Other assets and liabilities	19,762		(3,623)
Net cash flow provided by operating activities	Net cash flow provided by operating activities	6,046		18,511		Net cash flow provided by operating activities	219,256		138,369
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Additions to property, plant and equipment	Additions to property, plant and equipment	(17,246)		(20,422)		Additions to property, plant and equipment	(45,899)		(55,573)
Acquisition of businesses, net of cash acquired	Acquisition of businesses, net of cash acquired	—		(219)		Acquisition of businesses, net of cash acquired	(1,912)		(1,858)
Proceeds from sale of subsidiaries, net of cash disposed	Proceeds from sale of subsidiaries, net of cash disposed	—		(230)		Proceeds from sale of subsidiaries, net of cash disposed	0		(230)
Proceeds from sale of property, plant and equipment	Proceeds from sale of property, plant and equipment	15		88		Proceeds from sale of property, plant and equipment	5,086		91
Other investing activities	Other investing activities	(587)		(418)		Other investing activities	(1,762)		(1,485)
Net cash flow used in investing activities	Net cash flow used in investing activities	(17,818)		(21,201)		Net cash flow used in investing activities	(44,487)		(59,055)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Proceeds from issuance of long-term debt						Proceeds from issuance of long-term debt	0		500,000
Repayments of long-term debt	Repayments of long-term debt	(57)		(6)		Repayments of long-term debt	(57)		(500,115)

Payment of debt extinguishment costs						Payment of debt extinguishment costs	0		(14,065)
Payment of debt issuance costs						Payment of debt issuance costs	0		(6,701)

Tax withholding on share based awards	Tax withholding on share based awards	(1,427)		(1,090)		Tax withholding on share based awards	(2,752)		(1,454)
Distributions to non-controlling interests	Distributions to non-controlling interests	(710)		—		Distributions to non-controlling interests	(3,965)		(3,335)
Repurchases of common shares	Repurchases of common shares	(34,770)		(33,191)		Repurchases of common shares	(34,770)		(58,383)
Net cash flow used in financing activities	Net cash flow used in financing activities	(36,964)		(34,287)		Net cash flow used in financing activities	(41,544)		(84,053)
Net foreign currency translation adjustment on cash	Net foreign currency translation adjustment on cash	(3,853)		1,463		Net foreign currency translation adjustment on cash	524		(802)
Decrease in cash, cash equivalents and restricted cash		(52,589)		(35,514)
Increase (decrease) in cash, cash equivalents and restricted cash						Increase (decrease) in cash, cash equivalents and restricted cash	133,749		(5,541)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	177,608		126,141		Cash, cash equivalents and restricted cash, beginning of period	177,608		126,141
Cash, cash equivalents and restricted cash, at end of period	Cash, cash equivalents and restricted cash, at end of period	$	125,019	$	90,627	Cash, cash equivalents and restricted cash, at end of period	$	311,357	$	120,600

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

MASONITE INTERNATIONAL CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business Overview and Significant Accounting Policies

Unless we state otherwise or the context otherwise requires, references to "Masonite," "we," "our," "us" and the "Company" in these notes to the condensed consolidated financial statements refer to Masonite International Corporation and its subsidiaries.

Description of Business

Masonite International Corporation is one of the largest manufacturers of doors in the world, with significant market share in both interior and exterior door products. Masonite operates 6362 manufacturing and distribution facilities in 8 countries and sells doors to customers throughout the world with our largest markets being the United States, Canada and the United Kingdom.

Basis of Presentation

We prepare these unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") and applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments consisting of normal and recurring entries considered necessary for a fair presentation of the results for the interim periods presented have been included. All significant intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. These estimates are based on information available as of the date of the unaudited condensed consolidated financial statements; therefore, actual results could differ from those estimates. Interim results are not necessarily indicative of the results for a full year.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2019, as filed with the SEC. Our fiscal year is the 52- or 53-week period ending on the Sunday closest to December 31. In a 52-week year, each fiscal quarter consists of 13 weeks. For ease of disclosure, the 13-week periods are referred to as three-month periods. Our 2020 fiscal year, which ends on January 3, 2021, will contain 53 weeks of operating results, with the additional week occurring in the fourth quarter.

Changes in Accounting Standards and Policies

There have been no changes in the significant accounting policies from those that were disclosed in the fiscal year 2019 audited consolidated financial statements, other than as noted below.

Adoption of Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)”, which replaced the incurred loss methodology for recognizing credit losses with a current expected credit losses model. This standard applied to most financial assets, including trade receivables. Our prior accounts receivable policy is described in detail in our Annual Report on Form 10-K for the year ended December 29, 2019. We ~~have~~ adopted the new guidance using a modified retrospective approach as of December 30, 2019, the beginning of fiscal year 2020, and the adoption did not have a material impact on our financial statements and no adjustment was necessary to retained earnings on December 30, 2019.

The adoption of the standard resulted in a change in accounting policy for accounts receivable. Our new accounting policy for accounts receivable is presented below.

Accounts Receivable

We record accounts receivable as our products are received by our customers. Our customers are primarily retailers, distributors and contractors. We record an allowance for credit losses at the time that accounts receivable are initially recorded based on our historical write-off experience and the current economic environment as well as our

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

expectations of future economic conditions. We reassess the allowance at each reporting date. When it becomes apparent, based on age or customer circumstances, that such amounts will not be collected, they are charged to the allowance. Payments subsequently received are credited to the credit loss expense account included within selling, general and administration expenses in the consolidated statements of comprehensive ~~income.~~income (loss). Generally, we do not require collateral for our accounts receivable.

Other Recent Accounting Pronouncements not yet Adopted

In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes," as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. This standard removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We are in the process of evaluating this guidance to determine the impact it may have on our financial statements.

In August 2018, the FASB issued ASU 2018-14, "Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans," which amended ASC 715, "Compensation—Retirement Benefits." This standard is applicable for employers that sponsor defined benefit pension or other postretirement plans, and eliminates disclosures no longer considered cost beneficial, clarifies specific disclosure requirements for entities that provide aggregate disclosures for two or more plans and adds requirements for explanations for significant gains and losses related to changes in benefit obligations. The guidance will be effective for annual periods ending after December 15, 2020; early adoption is permitted and retrospective application is required. We are in the process of evaluating this guidance to determine the impact it may have on our financial statements.

2. Acquisitions and Divestitures

Acquisitions

~~Top Doors~~On August 31, 2020, we acquired intellectual property and other assets related to an interior door technology for cash consideration of $1.9 million. The purchase price allocation, net sales, net income (loss) attributable to Masonite and pro forma information for the acquisition are not presented as they were not material for any period presented.

On August 29, 2019, we completed the acquisition of TOPDOORS, s.r.o. ("Top Doors") based in the Czech Republic for cash consideration of $1.8 million, net of cash acquired. Top Doors is a specialist manufacturer of door frames. The $1.1 million excess purchase price over the fair value of net assets acquired ~~of $1.1 million~~ was allocated to goodwill in our Europe segment. The purchase price allocation, net sales, net income (loss) attributable to Masonite and pro forma information for Top Doors are not presented as they were not material for any period presented.

Divestitures

~~Window Widgets~~During the second quarter of 2020, we completed the liquidation of our legal entity in India. As a result, we recognized $2.1 million in loss on disposal of subsidiaries. The total charge consists of $2.3 million relating to the recognition of cumulative translation adjustment out of accumulated other comprehensive loss and $0.2 million relating to the write-off of net assets and other professional fees.

On December 13, 2019, we completed the sale of all of the capital stock of Window Widgets Limited ("WW") for consideration of $1.2 million, net of cash disposed. We have had no continuing involvement with WW subsequent to the sale. The divestiture of this business resulted in a loss on disposal of subsidiaries of $9.7 million, which was recognized in the fourth quarter of 2019 in the Europe segment. The total charge consists of $8.3 million relating to the write-off of the assets sold and other professional fees and $1.4 million relating to the recognition of the cumulative translation adjustment out of accumulated other comprehensive loss.

~~Performance Doorset Solutions Limited~~

On March 21, 2019, we completed the sale of all of the capital stock of Performance Doorset Solutions Limited ("PDS") for nominal consideration. We have had no continuing involvement with PDS subsequent to the sale, and the purchasers are not considered to be a related party. The divestiture of this business resulted in a loss on disposal of subsidiaries of $4.6 million, which was recognized in the first quarter of 2019 in the Europe segment. The total charge

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

consists of $3.6 million relating to the write-off of the net assets sold and other professional fees and $1.0 million relating to the recognition of the cumulative translation adjustment out of accumulated other comprehensive loss.

~~Table of Contents~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

3. Accounts Receivable

Our customers consist mainly of ~~wholesale~~retailers, distributors ~~dealers~~ and ~~retail home centers.~~contractors. Our 10 largest customers accounted for ~~53.7%~~55.9% and 44.9% of total accounts receivable as of ~~March 29,~~September 27, 2020, and December 29, 2019, respectively. Our largest customer, The Home Depot, Inc., accounted for more than 10% of the consolidated gross accounts receivable balance as of ~~March 29,~~September 27, 2020, and December 29, 2019. The allowance for doubtful accounts balance was ~~$2.2~~$2.4 million and $1.8 million as of ~~March 29,~~September 27, 2020, and December 29, 2019, respectively.

We maintain an accounts receivable sales program with a third party (the "AR Sales Program"). Under the AR Sales Program, we can transfer ownership of eligible trade accounts receivable of certain customers. Receivables are sold outright to a third party who assumes the full risk of collection, without recourse to us in the event of a loss. Transfers of receivables under this program are accounted for as sales. Proceeds from the transfers reflect the face value of the accounts receivable less a discount. Receivables sold under the AR Sales Program are excluded from trade accounts receivable in the condensed consolidated balance sheets and are included in cash flows from operating activities in the condensed consolidated statements of cash flows. The discounts on the sales of trade accounts receivable sold, if any, under the AR Sales Program were not material for any of the periods presented and were recorded in selling, general and administration expense within the condensed consolidated statements of comprehensive ~~income.~~income (loss).

4. Inventories

The amounts of inventory on hand were as follows as of the dates indicated:


(In thousands)	(In thousands)	March 29, 2020		December 29, 2019		(In thousands)	September 27, 2020		December 29, 2019
Raw materials	Raw materials	$	175,775	$	179,155	Raw materials	$	175,610	$	179,155
Finished goods	Finished goods	72,693		70,211		Finished goods	74,490		70,211
Provision for obsolete or aged inventory	Provision for obsolete or aged inventory	(7,493)		(7,136)		Provision for obsolete or aged inventory	(6,950)		(7,136)
Inventories, net	Inventories, net	$	240,975	$	242,230	Inventories, net	$	243,150	$	242,230

5. Accrued Expenses

The details of our accrued expenses were as follows as of the dates indicated:


(In thousands)	(In thousands)	March 29, 2020		December 29, 2019		(In thousands)	September 27, 2020		December 29, 2019
Accrued payroll	Accrued payroll	$	43,864	$	60,876	Accrued payroll	$	68,177	$	60,876
Accrued rebates	Accrued rebates	30,971		33,556		Accrued rebates	49,712		33,556
Current portion of operating lease liabilities	Current portion of operating lease liabilities	21,559		20,980		Current portion of operating lease liabilities	22,296		20,980
Accrued interest	Accrued interest	5,420		16,913		Accrued interest	5,391		16,913
Accrued legal settlement						Accrued legal settlement	37,750		0
Other accruals	Other accruals	43,528		48,080		Other accruals	51,680		48,080
Total accrued expenses	Total accrued expenses	$	145,342	$	180,405	Total accrued expenses	$	235,006	$	180,405

~~6. Long-Term Debt~~

(In thousands) March 29, 2020 December 29, 2019
5.375% senior unsecured notes due 2028 $ 500,000 $ 500,000
5.750% senior unsecured notes due 2026 300,000 300,000
Debt issuance costs (9,662) (9,985)
Other long-term debt 852 969
Total long-term debt $ 791,190 $ 790,984

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

6. Long-Term Debt


(In thousands)	September 27, 2020		December 29, 2019
5.375% senior unsecured notes due 2028	$	500,000	$	500,000
5.750% senior unsecured notes due 2026	300,000		300,000
Debt issuance costs	(9,018)		(9,985)

Other long-term debt	900		969
Total long-term debt	$	791,882	$	790,984

Interest expense related to our consolidated indebtedness under senior unsecured notes was ~~$11.3~~$11.4 million and $34.1 million for ~~both~~ the three and nine months ended ~~March~~September 27, 2020, respectively, and $12.0 million and $34.8 million for the three and nine months ended September 29, ~~2020, and March 31, 2019.~~2019, respectively.

5.375% Senior Notes due 2028

On July 25, 2019, we issued $500.0 million aggregate principal senior unsecured notes (the "2028 Notes"). The 2028 Notes bear interest at 5.375%, payable in cash semiannually in arrears on February 1 and August 1 of each year and are due February 1, 2028. The 2028 Notes were issued at par. The net proceeds from issuance of the 2028 Notes, together with available cash balances, were used to redeem the remaining $500.0 million aggregate principal amount of similar senior unsecured notes, including the payment of related premiums, fees and expenses.

Information concerning obligations under the 2028 Notes and the indenture governing them are described in detail in our Annual Report on Form 10-K for the year ended December 29, 2019. As of ~~March 29,~~September 27, 2020, we were in compliance with all covenants under the indenture governing the 2028 Notes.

5.750% Senior Notes due 2026

On August 27, 2018, we issued $300.0 million aggregate principal senior unsecured notes (the "2026 Notes"). The 2026 Notes bear interest at 5.750% per annum, payable in cash semiannually in arrears on March 15 and September 15 of each year and are due September 15, 2026. The 2026 Notes were issued at par.

Information concerning obligations under the 2026 Notes and the indenture governing them are described in detail in our Annual Report on Form 10-K for the year ended December 29, 2019. As of ~~March 29,~~September 27, 2020, we were in compliance with all covenants under the indenture governing the 2026 Notes.

ABL Facility

On January 31, 2019, we and certain of our subsidiaries entered into a $250.0 million asset-based revolving credit facility (the "ABL Facility") maturing on January 31, 2024, which replaced the previous facility. Borrowings under the ABL Facility bear interest at a rate equal to, at our option, (i) the United States, Canadian or United Kingdom Base Rate (each as defined in the credit agreement relating to the ABL Facility, the "Amended and Restated Credit Agreement") plus a margin ranging from 0.25% to 0.50% per annum, or (ii) the Adjusted LIBO Rate or BA Rate (each as defined in the Amended and Restated Credit Agreement), plus a margin ranging from 1.25% to 1.50% per annum. In addition to paying interest on any outstanding principal under the ABL Facility, a commitment fee is payable on the undrawn portion of the ABL Facility in an amount equal to 0.25% per annum of the average daily balance of unused commitments during each calendar quarter.

The ABL Facility contains various customary representations, warranties by us and covenants that are described in detail in our Annual Report on Form 10-K for the year ended December 29, 2019. As of ~~March 29,~~September 27, 2020, we were in compliance with all covenants under the credit agreement governing the ABL Facility. We had availability of ~~$185.3~~$205.6 million under our ABL Facility and there were 0 amounts outstanding as of ~~March 29,~~September 27, 2020.

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

7. Commitments and Contingencies

The following discussion describes material developments in previously disclosed legal proceedings that occurred since December 29, 2019. Refer to Note 10. Commitments and Contingencies in the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 29, 2019, for a full description of the previously disclosed legal proceedings.

Class Action Proceedings - United States

With respect to the putative antitrust class action cases pending in the Eastern District of Virginia, on August 31, 2020, the ~~parties are~~Company, and its co-defendant JELD-WEN, Inc., entered into a settlement agreement with the named plaintiffs representing a class of direct purchasers of interior molded and pre-hung doors included in In re: Interior Molded Doors Direct Purchaser Antitrust Litigation, a consolidated antitrust class action pending in the ~~midst~~United States District Court for the Eastern District of ~~class certification briefing and expert discovery. Due~~Virginia (the “Court”). As part of the direct purchaser settlement, each defendant has agreed to make a payment of $28.0 million to the ~~ongoing coronavirus pandemic,~~named plaintiffs and the settlement class in exchange for a full release of claims through the date of preliminary Court approval. Also, on March 17, 2020, the Court extended all case deadlines by 60 days at the parties’ request. Expert discovery is now expected to close in June 2020. Briefing on class certification discovery is expected to be completed by June 9, 2020. Briefing on dispositive motions is expected to be completed by September ~~7, 2020. The Court has reset the presumptive trial date as January 11, 2021. On May~~ 4, 2020, the ~~Court ruled on Defendants’ December 16, 2019, partial motion to dismiss plaintiffs’ reinstated claims, granting it~~Company and its co-defendant, JELD-WEN, Inc., entered into a settlement agreement with the named plaintiffs representing a class of indirect purchasers of interior molded and pre-hung doors included in In re: Interior Molded Doors Indirect Purchaser Antitrust Litigation. As part ~~and denying it in part. By granting the motion in part, the Court dismissed~~of the indirect ~~purchasers'~~purchaser settlement, each defendant has agreed to make a payment of $9.75 million to the named plaintiffs and the settlement class in exchange for a full release of claims ~~under Kansas, Utah~~through the date of execution of the settlement agreement. Both settlements received preliminary Court approval on October 8, 2020, and ~~Virginia consumer protection laws~~are subject to final Court approval and ~~it also limited~~other conditions set forth in the ~~time period during which indirect purchasers from Hawaii, Kansas, Maine, New Hampshire, North Dakota, Utah, Virginia, West Virginia~~respective settlement agreements. In the settlement agreements the Company denied any wrongdoing. During the three months ended September 27, 2020, we recorded a legal reserve of $37.75 million in selling, general and ~~Wisconsin could claim damages.~~administration expenses within the condensed consolidated statements of comprehensive income (loss).

Class Action Proceedings - Canada

In addition, on May 19, 2020, an intended class proceeding was commenced in the Province of Québec, Canada naming as defendants Masonite Corporation, Corporation Internationale Masonite, JELD-WEN, Inc., JELD-WEN Holding, Inc. and JELD-WEN of Canada, Ltd. The intended class proceeding seeks damages, punitive damages, and other relief. The plaintiff alleges that the Masonite and JELD-WEN defendants engaged in anticompetitive conduct, including price-fixing involving interior molded doors. This proceeding is at a very early stage and has not been certified. We have not recognized an expense related to damages in connection with this matter because, although an adverse outcome is reasonably possible, the amount or range of any potential loss cannot be reasonably estimated.

Also, on October 2, 2020, an intended class proceeding was commenced in the Federal Court of Canada naming as defendants Masonite International Corporation, Masonite Corporation, JELD-WEN, Inc., JELD-WEN Holding, Inc. and JELD-WEN of Canada, Ltd. The intended class proceeding seeks damages, punitive damages, and other relief. The plaintiff alleges that the Masonite and JELD-WEN defendants engaged in anticompetitive conduct, including price-fixing involving interior molded doors. This proceeding is at a very early stage and has not been certified. We have not recognized an expense related to damages in connection with this matter because, although an adverse outcome is reasonably possible, the amount or range of any potential loss cannot be reasonably estimated.

While we intend to defend against these claims vigorously, there can be no assurance that the ultimate resolution of this litigation will not have a material, adverse effect on our consolidated financial condition or results of operations.

General

In addition to the above, from time to time, we are involved in various claims and legal actions. In the opinion of management, the ultimate disposition of these matters, individually and in the aggregate, will not have a material adverse effect on our financial condition, results of operations or cash flows.

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

8. Share Based Compensation Plans

Share based compensation expense was ~~$3.5~~$6.3 million and ~~$2.7~~$13.5 million for the three and nine months ended ~~March~~September 27, 2020, respectively, and $3.7 million and $8.5 million for the three and nine months ended September 29, ~~2020, and March 31,~~ 2019, respectively. As of ~~March 29,~~September 27, 2020, the total remaining unrecognized compensation expense related to share based compensation amounted to ~~$24.5~~$18.7 million, which will be amortized over the weighted average remaining requisite service period of ~~1.9~~1.6 years.

Equity Incentive Plans

Our equity incentive plans under the 2009 Plan and the 2012 Plan are described in detail and defined in our Annual Report on Form 10-K for the year ended December 29, 2019. The aggregate number of common shares that can be issued with respect to equity awards under the 2012 Plan cannot exceed 2,000,000 shares plus the number of shares subject to existing grants under the 2009 Plan that may expire or be forfeited or canceled. As of ~~March 29,~~September 27, 2020, there were ~~675,354~~728,990 shares of common stock available for future issuance under the 2012 Plan.

Deferred Compensation Plan

We offer to certain of our employees and directors a Deferred Compensation Plan, which is further described in our Annual Report on Form 10-K for the year ended December 29, 2019. As of ~~March 29,~~September 27, 2020, the liability and asset relating to deferred compensation had a fair value of ~~$5.1~~$6.4 million and ~~$4.9~~$6.2 million, respectively. As of ~~March 29,~~September 27, 2020, participation in the deferred compensation plan is limited and no restricted stock awards have been deferred into the deferred compensation plan. All plan investments are categorized as having Level 1 valuation inputs as established by the FASB’s Fair Value Framework.

Stock Appreciation Rights

We have granted Stock Appreciation Rights ("SARs") to certain employees under both the 2009 Plan and the 2012 Plan, which entitle the recipient to the appreciation in value of a number of common shares over the exercise price over a period of time, each as specified in the applicable award agreement. The exercise price of any SAR granted may not be less than the fair market value of our common shares on the date of grant. The compensation expense for the SARs is measured based on the fair value of the SARs at the date of grant and is recognized over the requisite service period. The SARs vest over a maximum of three years, have a life of ten years and settle in common shares. It is assumed that all time-based SARs will vest. We recognize forfeitures of SARs in the period in which they occur.

The total fair value of SARs vested was $1.0 million during the nine months ended September 27, 2020.


Nine Months Ended September 27, 2020	Stock Appreciation Rights	Aggregate Intrinsic Value (in thousands)		Weighted Average Exercise Price		Average Remaining Contractual Life (Years)
Outstanding, beginning of period	404,447	$	7,615	$	53.62	4.7
Granted	32,435			83.39
Exercised	(143,624)	4,454		43.24
Forfeited	(15,538)			62.78
Outstanding, end of period	277,720	$	8,346	$	61.96	6.6

Exercisable, end of period	161,052	$	5,240	$	59.48	5.2

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

~~The total fair value of SARs vested was $0.9 million and $1.1 million during the three months ended March 29, 2020, and March 31, 2019, respectively.~~

Three Months Ended March 29, 2020 Stock Appreciation Rights Aggregate Intrinsic Value (in thousands) Weighted Average Exercise Price Average Remaining Contractual Life (Years)
Outstanding, beginning of period 404,447 $ 7,615 $ 53.62 4.7
Granted 29,522 87.18
Exercised (44,850) 2,155 31.82
Forfeited (4,613) 57.52
Outstanding, end of period 384,506 $ 986 $ 58.70 5.2
Exercisable, end of period 241,134 $ 986 $ 55.14 3.3

The value of SARs granted is determined using the Black-Scholes-Merton valuation model, and the corresponding expense is recognized over the average requisite service period of 2.0 years for all periods presented. Expected volatility is based upon the historical volatility of our common shares amongst other considerations. The expected term is calculated using the simplified method, due to insufficient exercise activity during recent years as a basis from which to estimate future exercise patterns. The weighted average grant date assumptions used for the SARs granted were as follows for the periods indicated:


	~~2020 Grants~~
~~SAR value (model conclusion)~~	$	~~21.51~~
~~Risk-free rate~~	~~1.3~~		%
~~Expected dividend yield~~	~~0.0~~		%
~~Expected volatility~~	~~22.4~~		%
~~Expected term (years)~~	~~6.0~~


	2020 Grants
SAR value (model conclusion)	$	20.56
Risk-free rate	1.2		%
Expected dividend yield	0.0		%
Expected volatility	22.6		%
Expected term (years)	6.0

Restricted Stock Units

We have granted Restricted Stock Units ("RSUs") to directors and certain employees under both the 2009 Plan and the 2012 Plan. The RSUs confer the right to receive shares of our common stock at a specified future date or when certain conditions are met. The compensation expense for the RSUs awarded is based on the fair value of the RSUs at the date of grant and is recognized over the requisite service period. The RSUs vest over a maximum of three years and call for the underlying shares to be delivered no later than 30 days following the vesting date unless the participant is subject to a blackout period. In such case, the shares are to be delivered once the blackout restriction has been lifted. It is assumed that all time-based RSUs will vest. We recognize forfeitures of RSUs in the period in which they occur.

~~Table of Contents~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~


		Three Months Ended					Nine Months Ended
		March 29, 2020					September 27, 2020
		Total Restricted Stock Units Outstanding	Weighted Average Grant Date Fair Value			Total Restricted Stock Units Outstanding	Weighted Average Grant Date Fair Value
Outstanding, beginning of period	Outstanding, beginning of period	523,207	$	59.58	Outstanding, beginning of period	523,207	$	59.58
Granted	Granted	177,866	81.91		Granted	211,000	79.00
Performance adjustment⁽¹⁾	Performance adjustment⁽¹⁾	(59,936)	67.50		Performance adjustment (1)	(59,936)	67.50
Delivered	Delivered	(79,449)			Delivered	(110,561)
Withheld to cover⁽²⁾	Withheld to cover⁽²⁾	(8,235)			Withheld to cover (2)	(15,620)
Forfeited	Forfeited	(17,572)			Forfeited	(53,544)
Outstanding, end of period	Outstanding, end of period	535,881	$	65.46	Outstanding, end of period	494,546	$	67.42

____________

(1) Performance-based RSUs are presented as outstanding, granted and forfeited in the table above assuming targets are met and the awards pay out at 100%. These awards are settled with payouts ranging from zero to 200% of the target award value depending on achievement. The performance adjustment represents the difference in shares ultimately awarded due to performance attainment above or below target.

(2) A portion of the vested RSUs delivered were net share settled to cover statutory requirements for income and other employment taxes. We remit the equivalent cash to the appropriate taxing authorities. These net share settlements had the effect of share repurchases by us as we reduced and retired the number of shares that would have otherwise been issued as a result of the vesting.

Approximately two-thirds of the RSUs granted during the ~~three~~nine months ended ~~March 29,~~September 27, 2020, vest at specified future dates with only service requirements, while the remaining portion of the RSUs vest based on both performance and service requirements. The expense for RSUs granted during the ~~three~~nine months ended ~~March 29,~~ September 27,

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

2020, is being recognized over the weighted average requisite service period of ~~2.5~~2.2 years. ~~87,684~~126,181 RSUs vested during the ~~three~~nine months ended ~~March 29,~~September 27, 2020, at a fair value of ~~$5.6~~$7.6 million.

9. Restructuring Costs

In February 2019, we began implementing a plan to improve overall business performance that includes the reorganization of our manufacturing capacity and a reduction of our overhead and selling, general and administration workforce across all of our reportable segments and in our head offices. The reorganization of our manufacturing capacity involves specific plants in the North American Residential and Architectural segments and costs associated with the closure of these plants and related headcount reductions began taking place in the first quarter of 2019 (collectively, the "2019 Plan"). Costs associated with the 2019 Plan include severance, retention and closure charges and will continue through 2020. Additionally, the plan ~~to divest non-core assets~~ was determined to be a triggering event requiring a test of the carrying value of the definite-lived assets relating to the divestitures, as further described in Note 10. As of ~~March 29,~~September 27, 2020, we expect to incur approximately $5$3 million to $6$4 million of additional charges related to the 2019 Plan.

During the fourth quarter of 2018, we began implementing a plan to reorganize and consolidate certain aspects of our United Kingdom head office function and optimize our portfolio by divesting non-core assets to enable more effective and consistent business processes in the Europe segment. In addition, in the North American Residential segment we announced a new facility that will optimize and expand capacity through increased automation, which resulted in the closure of one existing facility and related headcount reductions beginning in the second quarter of 2019 (collectively, the "2018 Plan"). Costs associated with the 2018 Plan include severance, retention and closure charges and continued throughout 2019. As of ~~March 29,~~September 27, 2020, we do not expect to incur any material future charges related to the 2018 Plan.

~~Table of Contents~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

The following ~~table summarizes~~tables summarize the restructuring charges recorded for the periods indicated:


		Three Months Ended March 29, 2020																			Three Months Ended September 27, 2020
(In thousands)	(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total		(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total

2019 Plan	2019 Plan	$	728	$	(37)	$	862	$	267	$	1,820	2019 Plan	$	1,825	$	0	$	82	$	67	$	1,974
2018 Plan	2018 Plan	121		—		—		—		121		2018 Plan	(79)		0		0		0		(79)

Total Restructuring Costs	Total Restructuring Costs	$	849	$	(37)	$	862	$	267	$	1,941	Total Restructuring Costs	$	1,746	$	0	$	82	$	67	$	1,895


		Three Months Ended March 31, 2019																			Three Months Ended September 29, 2019
(In thousands)	(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total		(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
2019 Plan	2019 Plan	$	1,459	$	331	$	604	$	394	$	2,788	2019 Plan	$	1,351	$	0	$	32	$	(56)	$	1,327
2018 Plan	2018 Plan	421		531		—		—		952		2018 Plan	410		257		0		0		667
Total Restructuring Costs	Total Restructuring Costs	$	1,880	$	862	$	604	$	394	$	3,740	Total Restructuring Costs	$	1,761	$	257	$	32	$	(56)	$	1,994

Cumulative Amount Incurred Through March 29, 2020
(In thousands) North American Residential Europe Architectural Corporate & Other Total
2019 Plan $ 6,187 $ 359 $ 1,368 $ 1,286 $ 9,200
2018 Plan 1,866 2,275 — — 4,141
Total Restructuring Costs $ 8,053 $ 2,634 $ 1,368 $ 1,286 $ 13,341

~~The changes in the accrual for restructuring by activity were as follows for the periods indicated:~~

(In thousands) December 29, 2019 Severance Closure Costs Cash Payments March 29, 2020
2019 Plan $ 1,535 $ 187 $ 1,633 $ (2,769) $ 586
2018 Plan — 103 18 (121) —
Total $ 1,535 $ 290 $ 1,651 $ (2,890) $ 586

(In thousands) December 30, 2018 Severance Closure Costs Cash Payments March 31, 2019
2019 Plan $ — $ 2,770 $ 18 $ (1,035) $ 1,753
2018 Plan 596 983 (31) (546) 1,002
Other 58 — — (17) 41
Total $ 654 $ 3,753 $ (13) $ (1,598) $ 2,796


	Nine Months Ended September 27, 2020
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total

2019 Plan	$	3,122	$	(37)	$	1,030	$	482	$	4,597
2018 Plan	387		0		0		0		387
Total Restructuring Costs	$	3,509	$	(37)	$	1,030	$	482	$	4,984

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	Nine Months Ended September 29, 2019
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
2019 Plan	$	3,755	$	336	$	518	$	403	$	5,012
2018 Plan	1,199		884		0		0		2,083
Total Restructuring Costs	$	4,954	$	1,220	$	518	$	403	$	7,095


	Cumulative Amount Incurred Through September 27, 2020
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total

2019 Plan	$	8,581	$	359	$	1,536	$	1,501	$	11,977
2018 Plan	2,132		2,275		0		0		4,407
Total Restructuring Costs	$	10,713	$	2,634	$	1,536	$	1,501	$	16,384

The changes in the accrual for restructuring by activity were as follows for the periods indicated:


(In thousands)	December 29, 2019		Severance		Closure Costs		Cash Payments		September 27, 2020

2019 Plan	$	1,535	$	1,073	$	3,524	$	(5,475)	$	657
2018 Plan	0		151		236		(387)		0
Total	$	1,535	$	1,224	$	3,760	$	(5,862)	$	657


(In thousands)	December 30, 2018		Severance		Closure Costs		Cash Payments		September 29, 2019
2019 Plan	$	0	$	3,393	$	1,619	$	(4,185)	$	827
2018 Plan	596		1,798		285		(2,653)		26
Other	58		0		0		(58)		0
Total	$	654	$	5,191	$	1,904	$	(6,896)	$	853

10. Asset Impairment

During the three months ended ~~March 31,~~September 27, 2020, we determined the continued decreased demand in the Architectural door market due to the impact of COVID-19 in the current year, along with the uncertainty of the duration and intensity of the pandemic on the Architectural door market for future periods were indicators that goodwill impairment was present in the Architectural reporting unit. The quantitative impairment test was conducted using multiple valuation techniques, including a discounted cash flow analysis and market approach, which utilizes Level 3 fair value inputs, and resulted in a goodwill impairment charge of $51.5 million. The charge represents the amount by which the carrying value of the Architectural reporting unit exceeded its fair value and reduced the goodwill balance in the Architectural reporting unit from $111.0 million to $59.5 million.

During the nine months ended September 29, 2019, we recognized asset impairment charges of ~~$10.6~~$13.8 million related to two asset groups in the North American Residential segment, as a result of announced plant closures under the 2019 Plan. This amount was determined based upon the excess of the asset groups' carrying values of property, plant and equipment and operating lease right-of-use assets over the respective fair values of such assets, determined using a discounted cash flows approach for each asset group. Each of these valuations was performed on a non-recurring basis and is categorized as having Level 3 valuation inputs as established by the FASB's Fair Value Framework. The Level 3

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

unobservable inputs include an estimate of future cash flows and the salvage value for each of the asset groups. The fair value of the asset groups was determined to be ~~$11.3~~$9.4 million, compared to a book value of ~~$21.9~~$23.2 million, with the difference representing the asset impairment charges recorded in the condensed consolidated statements of comprehensive ~~income.~~income (loss).

11. Income Taxes

The effective tax rate differs from the Canadian statutory rate of 26.7% primarily due to nondeductible goodwill impairment charges related to prior stock acquisitions within the Architectural reporting unit, mix of earnings in foreign jurisdictions that are subject to tax rates which differ from the Canadian statutory rate and changes in our valuation allowances. In addition, we recognized ~~$0.7~~$0.1 million and $0.9 million of income tax benefit due to the exercise and delivery of share-based awards during the three and nine months ended ~~March 29,~~September 27, 2020, respectively, compared to $0.1 million of income tax benefit due to the exercise and delivery of share-based awards during the three and nine months ended ~~March 31,~~September 29, 2019.

WeFor the nine months ended September 27, 2020, we have ~~historically~~ calculated the provision for income taxes ~~during interim reporting periods~~ by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss ~~(pre-tax~~(pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. Due to the uncertainties stemming from the impact of the COVID-19 pandemic on our operations, we have used a discrete effective tax rate method to calculate taxes for the three months ended March 29, 2020.

On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. We are analyzing the different aspects of the CARES Act and other governmental programs to determine whether any specific provisions may impact us.

12. Earnings Per Share

Basic earnings per share ("EPS") is calculated by dividing earnings attributable to Masonite by the weighted average number of our common shares outstanding during the period. Diluted EPS is calculated by dividing earnings attributable to Masonite by the weighted average number of common shares plus the incremental number of shares issuable from non-vested and vested RSUs and SARs outstanding during the period.

~~Table of Contents~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~


(In thousands, except share and per share information)	(In thousands, except share and per share information)	Three Months Ended										(In thousands, except share and per share information)	Three Months Ended								Nine Months Ended
				March 29, 2020			March 31, 2019			(In thousands, except share and per share information)	September 27, 2020					September 29, 2019				September 27, 2020				September 29, 2019
Net income attributable to Masonite		$	29,885		$	3,789
Net income (loss) attributable to Masonite								Net income (loss) attributable to Masonite	$		(21,766)				$	14,969			$	42,116			$	43,000

Shares used in computing basic earnings per share	Shares used in computing basic earnings per share	24,861,442			25,574,910			Shares used in computing basic earnings per share	24,495,760				24,944,126				24,607,926				25,215,034
Effect of dilutive securities:	Effect of dilutive securities:							Effect of dilutive securities:
Incremental shares issuable under share compensation plans	Incremental shares issuable under share compensation plans	353,322			376,574			Incremental shares issuable under share compensation plans	0				299,554				332,339				306,663
Shares used in computing diluted earnings per share	Shares used in computing diluted earnings per share	25,214,764			25,951,484			Shares used in computing diluted earnings per share	24,495,760				25,243,680				24,940,265				25,521,697

Basic earnings per common share attributable to Masonite		$	1.20		$	0.15
Diluted earnings per common share attributable to Masonite		$	1.19		$	0.15
Basic earnings (loss) per common share attributable to Masonite								Basic earnings (loss) per common share attributable to Masonite	$	(0.89)			$	0.60			$	1.71			$	1.71
Diluted earnings (loss) per common share attributable to Masonite								Diluted earnings (loss) per common share attributable to Masonite	$	(0.89)			$	0.59			$	1.69			$	1.68

Anti-dilutive instruments excluded from diluted earnings per common share	Anti-dilutive instruments excluded from diluted earnings per common share	258,773			235,650			Anti-dilutive instruments excluded from diluted earnings per common share	417,309				283,966				137,822				295,879

The weighted average number of shares outstanding utilized for the diluted EPS calculation contemplates the exercise of all currently outstanding SARs and the conversion of all RSUs. The dilutive effect of such equity awards is calculated based on the weighted average share price for each fiscal period using the treasury stock method.

13. Segment Information

Our reportable segments are organized and managed principally by end market: North American Residential, Europe and Architectural. The North American Residential reportable segment is the aggregation of the Wholesale and Retail operating segments. The Europe reportable segment is the aggregation of the Europe Interior and Europe Exterior operating segments. The Architectural reportable segment consists solely of the Architectural operating segment. The Corporate & Other category includes unallocated corporate costs and the results of immaterial operating segments which were not aggregated into any reportable segment. ~~Operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics.~~ In addition to similar economic

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

characteristics we also consider the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to our chief operating decision maker for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors and investors.

Our management reviews net sales and Adjusted EBITDA (as defined below) to evaluate segment performance and allocate resources. Net assets are not allocated to the reportable segments. Adjusted EBITDA is a non-GAAP financial measure which does not have a standardized meaning under GAAP and is unlikely to be comparable to similar measures used by other companies. Adjusted EBITDA should not be considered as an alternative to either net income or operating cash flows determined in accordance with GAAP. Adjusted EBITDA is defined as net income (loss) attributable to Masonite adjusted to exclude the following items:

• depreciation;

• amortization;

• share based compensation expense;

• loss (gain) on disposal of property, plant and equipment;

• registration and listing fees;

• restructuring costs;

• asset impairment;

• loss (gain) on disposal of subsidiaries;

• interest expense (income), net;

• loss on extinguishment of debt;

• other expense (income), net;

• income tax expense (benefit);

• other items;

• loss (income) from discontinued operations, net of tax; and

• net income (loss) attributable to non-controlling interest.

~~Table~~The definition of ~~Contents~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

Adjusted EBITDA was updated in the third quarter of 2020 to exclude other items as these charges are not part of our underlying business performance. This change had no impact to Adjusted EBITDA for the three and nine months ended September 29, 2019. This definition of Adjusted EBITDA differs from the definitions of EBITDA contained in the indentures governing the 2028 Notes and 2026 Notes and the credit agreement governing the ABL Facility. Although Adjusted EBITDA is not a measure of financial condition or performance determined in accordance with GAAP, it is used to evaluate and compare the operating performance of the segments and it is one of the primary measures used to determine employee incentive compensation. Intersegment sales are recorded using market prices.

Certain information with respect to segments is as follows for the periods indicated:

Three Months Ended March 29, 2020
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net sales $ 384,445 $ 71,156 $ 94,555 $ 5,427 $ 555,583
Intersegment sales (588) (430) (3,337) — (4,355)
Net sales to external customers $ 383,857 $ 70,726 $ 91,218 $ 5,427 $ 551,228
Adjusted EBITDA $ 71,696 $ 9,679 $ 10,582 $ (10,440) $ 81,517

Three Months Ended March 31, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net sales $ 354,802 $ 84,739 $ 88,353 $ 6,728 $ 534,622
Intersegment sales (1,077) (472) (2,762) — (4,311)
Net sales to external customers $ 353,725 $ 84,267 $ 85,591 $ 6,728 $ 530,311
Adjusted EBITDA $ 53,621 $ 9,997 $ 7,614 $ (5,753) $ 65,479


	Three Months Ended September 27, 2020
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
Net sales	$	421,186	$	75,192	$	92,021	$	6,100	$	594,499
Intersegment sales	(654)		(910)		(5,283)		0		(6,847)
Net sales to external customers	$	420,532	$	74,282	$	86,738	$	6,100	$	587,652

Adjusted EBITDA	$	97,492	$	15,021	$	11,126	$	(14,639)	$	109,000

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	Three Months Ended September 29, 2019
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
Net sales	$	374,612	$	76,308	$	100,707	$	5,814	$	557,441
Intersegment sales	(701)		(343)		(4,205)		0		(5,249)
Net sales to external customers	$	373,911	$	75,965	$	96,502	$	5,814	$	552,192

Adjusted EBITDA	$	61,549	$	10,645	$	13,920	$	(10,270)	$	75,844


	Nine Months Ended September 27, 2020
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
Net sales	$	1,187,239	$	176,778	$	275,972	$	14,493	$	1,654,482
Intersegment sales	(1,685)		(1,882)		(12,377)		0		(15,944)
Net sales to external customers	$	1,185,554	$	174,896	$	263,595	$	14,493	$	1,638,538

Adjusted EBITDA	$	260,319	$	23,782	$	33,208	$	(34,900)	$	282,409


	Nine Months Ended September 29, 2019
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
Net sales	$	1,109,919	$	242,408	$	290,206	$	17,741	$	1,660,274
Intersegment sales	(2,673)		(1,223)		(10,932)		0		(14,828)
Net sales to external customers	$	1,107,246	$	241,185	$	279,274	$	17,741	$	1,645,446

Adjusted EBITDA	$	178,571	$	34,050	$	34,312	$	(25,877)	$	221,056

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

A reconciliation of our net income ~~(loss)~~ attributable to Masonite to consolidated Adjusted EBITDA is set forth as follows for the periods indicated:


		Three Months Ended							Three Months Ended				Nine Months Ended
(In thousands)	(In thousands)	March 29, 2020		March 31, 2019		(In thousands)	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Net income attributable to Masonite		$	29,885	$	3,789
Net income (loss) attributable to Masonite						Net income (loss) attributable to Masonite	$	(21,766)	$	14,969	$	42,116	$	43,000
Plus:	Plus:					Plus:
Depreciation	Depreciation	16,018		18,285		Depreciation	17,881		16,359		50,742		52,845
Amortization	Amortization	6,459		7,597		Amortization	5,519		7,054		17,900		21,980
Share based compensation expense	Share based compensation expense	3,470		2,680		Share based compensation expense	6,299		3,695		13,509		8,468
Loss on disposal of property, plant and equipment		1,622		2,913
Loss (gain) on disposal of property, plant and equipment						Loss (gain) on disposal of property, plant and equipment	(416)		705		3,629		4,940
Restructuring costs	Restructuring costs	1,941		3,740		Restructuring costs	1,895		1,994		4,984		7,095
Asset impairment	Asset impairment	—		10,625		Asset impairment	51,515		0		51,515		13,767
Loss on disposal of subsidiaries	Loss on disposal of subsidiaries	—		4,605		Loss on disposal of subsidiaries	0		0		2,091		4,605
Interest expense, net	Interest expense, net	11,282		11,127		Interest expense, net	11,805		11,909		34,911		34,393

Loss on extinguishment of debt						Loss on extinguishment of debt	0		14,523		0		14,523
Other expense (income), net	Other expense (income), net	49		(1,130)		Other expense (income), net	(1,953)		(824)		(3,350)		(2,410)
Income tax expense	Income tax expense	9,639		58		Income tax expense	(804)		4,334		23,522		14,685
Other items (1)						Other items (1)	37,750		0		37,750		0
Net income attributable to non-controlling interest	Net income attributable to non-controlling interest	1,152		1,190		Net income attributable to non-controlling interest	1,275		1,126		3,090		3,165
Adjusted EBITDA	Adjusted EBITDA	$	81,517	$	65,479	Adjusted EBITDA	$	109,000	$	75,844	$	282,409	$	221,056

__________

(1) Other items not part of our underlying business performance include $37,750 in legal reserves related to the previously disclosed settlement of U.S. class action litigation in the three and nine months ended September 27, 2020, and were recorded in selling, general and administration expenses within the condensed consolidated statements of comprehensive income (loss). Refer to Note 7. Commitments and Contingencies for additional information.

1617

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

14. Accumulated Other Comprehensive Loss and Other Comprehensive Income (Loss)

A rollforward of the components of accumulated other comprehensive loss is as follows for the periods indicated:


		Three Months Ended							Three Months Ended				Nine Months Ended
(In thousands)	(In thousands)	March 29, 2020		March 31, 2019		(In thousands)	September 27, 2020		September 29, 2019		September 27, 2020		September 29, 2019
Accumulated foreign currency translation losses, beginning of period	Accumulated foreign currency translation losses, beginning of period	$	(113,336)	$	(129,930)	Accumulated foreign currency translation losses, beginning of period	$	(136,969)	$	(121,440)	$	(113,336)	$	(129,930)
Foreign currency translation gain (loss)	Foreign currency translation gain (loss)	(38,687)		12,990		Foreign currency translation gain (loss)	14,137		(12,733)		(12,072)		(4,921)
Income tax benefit (expense) on foreign currency translation gain	Income tax benefit (expense) on foreign currency translation gain	(44)		12		Income tax benefit (expense) on foreign currency translation gain	19		(10)		(8)		15
Cumulative translation adjustment recognized upon deconsolidation of subsidiary	Cumulative translation adjustment recognized upon deconsolidation of subsidiary	—		1,001		Cumulative translation adjustment recognized upon deconsolidation of subsidiary	0		0		2,254		1,001
Less: foreign currency translation gain (loss) attributable to non-controlling interest	Less: foreign currency translation gain (loss) attributable to non-controlling interest	(579)		216		Less: foreign currency translation gain (loss) attributable to non-controlling interest	206		(122)		(143)		226
Accumulated foreign currency translation losses, end of period	Accumulated foreign currency translation losses, end of period	(151,488)		(116,143)		Accumulated foreign currency translation losses, end of period	(123,019)		(134,061)		(123,019)		(134,061)

Accumulated pension and other post-retirement adjustments, beginning of period	Accumulated pension and other post-retirement adjustments, beginning of period	(16,833)		(22,989)		Accumulated pension and other post-retirement adjustments, beginning of period	(16,578)		(22,392)		(16,833)		(22,989)

Amortization of actuarial net losses	Amortization of actuarial net losses	173		404		Amortization of actuarial net losses	173		404		518		1,211
Income tax expense on amortization of actuarial net losses	Income tax expense on amortization of actuarial net losses	(45)		(105)		Income tax expense on amortization of actuarial net losses	(44)		(104)		(134)		(314)

Accumulated pension and other post-retirement adjustments	Accumulated pension and other post-retirement adjustments	(16,705)		(22,690)		Accumulated pension and other post-retirement adjustments	(16,449)		(22,092)		(16,449)		(22,092)

Accumulated other comprehensive loss	Accumulated other comprehensive loss	$	(168,193)	$	(138,833)	Accumulated other comprehensive loss	$	(139,468)	$	(156,153)	$	(139,468)	$	(156,153)

Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	$	(38,603)	$	14,302	Other comprehensive income (loss), net of tax	$	14,285	$	(12,443)	$	(9,442)	$	(3,008)
Less: other comprehensive income (loss) attributable to non-controlling interest	Less: other comprehensive income (loss) attributable to non-controlling interest	(579)		216		Less: other comprehensive income (loss) attributable to non-controlling interest	206		(122)		(143)		226
Other comprehensive income (loss) attributable to Masonite	Other comprehensive income (loss) attributable to Masonite	$	(38,024)	$	14,086	Other comprehensive income (loss) attributable to Masonite	$	14,079	$	(12,321)	$	(9,299)	$	(3,234)

Cumulative translation adjustments are reclassified out of accumulated other comprehensive loss into loss on disposal of subsidiaries in the condensed consolidated statements of comprehensive ~~income.~~income (loss). Actuarial net losses are reclassified out of accumulated other comprehensive loss into cost of goods sold in the condensed consolidated statements of comprehensive ~~income.~~income (loss).

Foreign currency translation ~~losses~~gains as a result of translating our foreign assets and liabilities into U.S. dollars during the three months ended ~~March 29,~~September 27, 2020, were ~~$38.7~~$14.1 million, primarily driven by the strengthening of the Pound Sterling, the Canadian Dollar and the Euro in comparison to the U.S. Dollar during the period. During the nine months ended September 27, 2020, foreign currency translation losses were $12.1 million, primarily driven by the weakening of the Pound Sterling, the Canadian Dollar and the Mexican Peso, partially offset by strengthening of the Euro in comparison to the U.S. ~~Dollar.~~

Dollar during the period.

1718

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

15. Supplemental Cash Flow Information

Certain cash and non-cash transactions were as follows for the periods indicated:


		Three Months Ended							Nine Months Ended
(In thousands)	(In thousands)	March 29, 2020		March 31, 2019		(In thousands)	September 27, 2020		September 29, 2019
Transactions involving cash:	Transactions involving cash:					Transactions involving cash:
Interest paid	Interest paid	$	22,662	$	23,785	Interest paid	$	45,147	$	44,230
Interest received	Interest received	641		672		Interest received	956		2,058
Income taxes paid	Income taxes paid	3,030		1,308		Income taxes paid	14,756		10,731
Income tax refunds	Income tax refunds	392		—		Income tax refunds	791		69
Cash paid for operating lease liabilities	Cash paid for operating lease liabilities	6,835		6,290		Cash paid for operating lease liabilities	20,986		19,636
Cash paid for finance lease liabilities	Cash paid for finance lease liabilities	317		—		Cash paid for finance lease liabilities	957		0
Non-cash transactions from operating activities:	Non-cash transactions from operating activities:					Non-cash transactions from operating activities:
Right-of-use assets acquired under operating leases	Right-of-use assets acquired under operating leases	3,863		20,289		Right-of-use assets acquired under operating leases	27,884		49,932

The following reconciles total cash, cash equivalents and restricted cash as of the dates indicated:


		March 29, 2020		December 29, 2019			September 27, 2020		December 29, 2019
Cash and cash equivalents	Cash and cash equivalents	$	114,375	$	166,964	Cash and cash equivalents	$	300,797	$	166,964
Restricted cash	Restricted cash	10,644		10,644		Restricted cash	10,560		10,644
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	125,019	$	177,608	Total cash, cash equivalents and restricted cash	$	311,357	$	177,608

Property, plant and equipment additions in accounts payable were ~~$4.6~~$3.5 million and $6.3 million as of ~~March 29,~~September 27, 2020, and December 29, 2019, respectively.

16. Fair Value of Financial Instruments

The carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, income taxes receivable, accounts payable, accrued expenses and income taxes payable approximate fair value because of the short-term maturity of those instruments. The estimated fair values and carrying values of our long-term debt instruments were as follows for the periods indicated:


		March 29, 2020						December 29, 2019							September 27, 2020				December 29, 2019
(In thousands)	(In thousands)	Fair Value		Carrying Value		Fair Value		Carrying Value		(In thousands)	Fair Value		Carrying Value		Fair Value		Carrying Value
5.375% senior unsecured notes due 2028	5.375% senior unsecured notes due 2028	$	487,668	$	493,835	$	529,105	$	493,648	5.375% senior unsecured notes due 2028	$	531,353	$	494,207	$	529,105	$	493,648
5.750% senior unsecured notes due 2026	5.750% senior unsecured notes due 2026	$	293,249	$	296,503	318,846		296,367		5.750% senior unsecured notes due 2026	$	313,320	$	296,775	$	318,846	$	296,367

These estimates are based on market quotes and calculations based on current market rates available to us and are categorized as having Level 2 valuation inputs as established by the FASB's Fair Value Framework. Market quotes used in these calculations are based on bid prices for our debt instruments and are obtained from and corroborated with multiple independent sources. The market quotes obtained from independent sources are within the range of management's expectations.

1819

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is based upon accounting principles generally accepted in the United States of America and discusses the financial condition and results of operations for Masonite International Corporation for the three and nine months ended ~~March 29,~~September 27, 2020, and ~~March 31,~~September 29, 2019. In this MD&A, "Masonite," "we," "us," "our" and the "Company" refer to Masonite International Corporation and its subsidiaries.

This discussion should be read in conjunction with (i) the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and (ii) the annual audited consolidated financial statements, including the accompanying notes and MD&A, which are included in our Annual Report on Form 10-K for the year ended December 29, 2019. The following discussion should also be read in conjunction with the disclosure under "Special Note Regarding Forward Looking ~~Statements" and~~Statements," "Item 1A. Risk Factors" elsewhere in this Quarterly Report on Form ~~10-Q.~~10-Q and the Company's Quarterly Report on Form 10-Q for the first quarter of 2020. Our actual results could differ materially from the forward-looking statements as a result of these risks and uncertainties.

Overview

We are a leading global designer, manufacturer and distributor of interior and exterior doors for the new construction and repair, renovation and remodeling sectors of the residential and the non-residential building construction markets. Since 1925, we have provided our customers with innovative products and superior service at compelling values. In order to better serve our customers and create sustainable competitive advantages, we focus on developing innovative products, advanced manufacturing capabilities and technology-driven sales and service solutions.

We market and sell our products to remodeling contractors, builders, homeowners, retailers, dealers, lumberyards, commercial and general contractors and architects through well-established wholesale, retail and direct distribution channels as part of our cross-merchandising strategy. Customers are provided a broad product offering of interior and exterior doors and entry systems at various price points. We manufacture a broad line of interior doors, including residential molded, flush, stile and rail, louver and specially-ordered commercial and architectural doors; door components for internal use and sale to other door manufacturers; and exterior residential steel, fiberglass and wood doors and entry systems.

We operate 6362 manufacturing and distribution facilities in eight countries in North America, South America, Europe and Asia, which are strategically located to serve our customers through multiple distribution channels. These distribution channels include: (i) direct distribution to retail home center customers and homebuilders; (ii) one-step distribution that sells directly to homebuilders and contractors; and (iii) two-step distribution through wholesale distributors. For retail home center customers, numerous door fabrication facilities provide value-added fabrication and logistical services, including pre-finishing and store delivery of pre-hung interior and exterior doors. We believe our ability to provide: (i) a broad product range; (ii) frequent, rapid, on-time and complete delivery; (iii) consistency in products and merchandising; (iv) national service; and (v) special order programs enables retail customers to increase comparable store sales and helps to differentiate us from our competitors. We believe investments in innovative new product manufacturing and distribution capabilities, coupled with an ongoing commitment to operational excellence, provide a strong platform for future growth.

Our reportable segments are organized and managed principally by end market: North American Residential, Europe and Architectural. In the ~~three~~nine months ended ~~March 29,~~September 27, 2020, we generated net sales of ~~$383.9~~$1,185.6 million or ~~69.6%~~72.4%, ~~$70.7~~$174.9 million or ~~12.8%~~10.7% and ~~$91.2~~$263.6 million or ~~16.5%~~16.1% in our North American Residential, Europe and Architectural segments, respectively.

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Key Factors Affecting Our Results of Operations

COVID-19

A novel strain of coronavirus (COVID-19) was first identified in Wuhan, China in December 2019, and in March 2020 was declared a pandemic by the World Health Organization. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in business slowdowns or shutdowns in affected areas. As a result, COVID-19 has impacted our business globally. Our first priority with regard to the COVID-19 pandemic is to do everything we can to ensure the safety, health and welfare of our employees, customers, suppliers and others with whom we partner in our

~~Table of Contents~~

~~MASONITE INTERNATIONAL CORPORATION~~

business activities. Through the use of appropriate risk mitigation and safety practices at our facilities, we are endeavoring to maintain operations to continue supplying the industry during this uncertain time, recognizing the important role our customers and our products play in construction related to providing residential shelter and health care services.

ADuring 2020, a number of countries, provinces, states and municipalities ~~have~~ issued orders temporarily requiring persons who were not engaged in essential activities and businesses to remain at home. ~~Other~~Additionally, some jurisdictions without stay-at-home orders ~~have~~ required non-essential businesses to close. ~~In certain jurisdictions, residential and commercial construction have been designated as an essential business activity. Some~~As a result, some of our facilities were temporarily shut down ~~and some remain shut down resulting from~~due to the impact of these government orders. For example, our United Kingdom facilities ~~have been~~ closed ~~since~~on March 27, 2020, and did not reopen until May 2020. Additionally, local or regional hotspots of the pandemic resulted in other locations ~~could be~~being temporarily idled due to the impacts of COVID-19. Where possible, we have instructed employees to work from home and currently, most customer interaction including order entry and receivables are being effectively handled remotely. Where remote work is not possible, we have taken steps to restrict visitor access to facilities, adjust break times and create additional break areas to help reduce employee density, manage shift schedules to reduce employee contact during shift changes to facilitate proper social distancing and eliminated overtime in many locations, all of which have resulted in decreased production levels. Further, we have modified employee policies related to attendance and the availability of paid and unpaid time off and attendance is voluntary at locations where our operations are exempt from applicable stay-at-home orders and continue to operate.

While we believe we have a strong balance sheet and solid capital structure, we are taking steps to manage our cash flow. During the first quarter, we took several actions to reduce our spending and more closely manage cash during this uncertain period, including prioritizing capital spending for critical maintenance, safety and regulatory projects, placing restrictions on travel and temporarily suspending our share repurchase program and discretionary pension contributions. Although we are aggressively managing our response to the recent COVID-19 pandemic, given the fluid nature of the situation, its impact on our full year fiscal 2020 results and beyond is uncertain. We ~~believe~~estimate that the most significant elements of uncertainty are the intensity and duration of the impact on construction, renovation and consumer spending, tightening of consumer credit requirements, as well as the abilitynearly one-half of our sales channels, supply chain, manufacturing and distribution to continue to operate with minimal disruption for the remainder of fiscal 2020. We believe that COVID-19 will have a material adverse impact on our revenue growth, overall profitability and cash flowsbase volume decline in the near term and may lead to higher than normal inventory levels, higher sales-related reserves, potential impairment of goodwill and other long-lived assets, a volatile effective tax rate driven by changes in the mix of earnings across our jurisdictions and an impact on the effectiveness our internal controls over financial reporting. While COVID-19 did not begin to affect our financial results until late in the firstsecond quarter of 2020 ~~its~~was due to the closure of our manufacturing facilities as a result of COVID-19 in the United Kingdom and Ireland.

During the third quarter, production levels began to stabilize at many of our manufacturing facilities, but local or regional hotspots of the pandemic continued to result in pockets of absenteeism resulting in reduced production and one location being temporarily idled. While the direct financial impact of COVID-19 was much lower than what we experienced in the second quarter, the pandemic had and continues to have varying impacts on our ~~results~~reportable segments. For example, the impact of COVID-19 on demand in the ~~first quarter~~Architectural door market in the current year and expected impacts to future periods contributed to an impairment of ~~2020 is not indicative~~that reporting unit’s goodwill. Refer to Note 10. Asset Impairment, in Item 1 of ~~its impact on~~this Quarterly Report for additional information. The extent to which the COVID-19 pandemic impacts our ~~results for the remainder of 2020, as evidenced by the decline in our net sales and~~business, results of operations inand financial condition will depend on future developments, which are highly uncertain and cannot be predicted. These impacts include, but are not limited to, the ~~month~~duration, spread, severity and impact of April. As a result, we have taken further actions in April such as the deferral of merit and the implementation of temporary reductions in base pay for all salaried personnel in Canada and the United States not directly involved in plant operations and in cash retainers for our Board of Directors to manage cash flow and reduce spending.

~~On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families and businesses affected by~~ the COVID-19 pandemic, ~~and generally supporting~~ the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to the tax depreciation methods for qualified improvement property. We are analyzing the different aspectseffects of the ~~CARES Act~~COVID-19 pandemic on our employees, operations, customers, suppliers and ~~other similar governmental programs~~supply chain, the remedial actions and stimulus measures adopted by federal, state and local governments and the extent to determine whether any specific provisions may impact us. While we may determine to apply for such programs, there is no guarantee that we will meet any eligibility requirements to participate in such programs, or even if we are able to participate, that such programs will provide meaningful benefit to our business.which normal economic and operating conditions can resume.

Product Demand

There are numerous factors that influence overall market demand for our products. Demand for new homes, home improvement products and other building construction products have a direct impact on our financial condition and results of operations. Demand for our products may be impacted by changes in United States, Canadian, European, Asian or other global economic conditions, including inflation, deflation, interest rates, availability of capital, consumer spending rates, energy availability and costs, and the effects of governmental initiatives to manage economic conditions.

~~Table of Contents~~

~~MASONITE INTERNATIONAL CORPORATION~~

Additionally, trends in residential new construction, repair, renovation and remodeling and architectural building construction may directly impact our financial performance. Accordingly, the following factors may have a direct impact on our business in the countries and regions in which our products are sold:

•the strength of the economy;

•employment rates and consumer confidence;

•the amount and type of residential and commercial construction;

•housing sales and home values;

•the age of existing home stock, home vacancy rates and foreclosures;

•non-residential building occupancy rates;

•increases in the cost of raw materials or wages or any shortage in supplies or labor;

•the availability and cost of credit; and

•demographic factors such as immigration and migration of the population and trends in household formation.

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Product Pricing and Mix

The building products industry is highly competitive and we therefore face pressure on sales prices of our products. In addition, our competitors may adopt more aggressive sales policies and devote greater resources to the development, promotion and sale of their products than we do, which could result in a loss of customers. Our business in general is subject to changing consumer and industry trends, demands and preferences. Trends within the industry change often and our failure to anticipate, identify or quickly react to changes in these trends could lead to, among other things, rejection of a new product line and reduced demand and price reductions for our products, which could materially adversely affect us. Changes in consumer preferences may also lead to increased demand for our lower margin products relative to our higher margin products, which could reduce our future profitability.

In the fourth quarter of 2019, we communicated price increases that became effective on February 3, 2020, to our North American Residential customers that, for certain products, were significantly greater than our typical annual increases. We also communicated our intent to incrementally invest $100 million over the next five years in the areas of service and quality improvements, product innovation and end user marketing. While we believe that these initiatives are necessary in order to increase the profile of, and demand for, our products and that they will benefit both us and our customers, we cannot predict whether our efforts will ultimately be successful or how our customers will react to these initiatives which could have a material impact on our results of operations for future periods.

Business Wins and Losses

Our customers consist mainly of wholesalers and retail home centers. In fiscal year 2019, our top ten customers together accounted for approximately 43% of our net sales and our top customer, The Home Depot, Inc. accounted for approximately 17% of our net sales. Net sales from customers that have accounted for a significant portion of our net sales in past periods, individually or as a group, may not continue in future periods, or if continued, may not reach or exceed historical levels in any period. Certain customers perform periodic product line reviews to assess their product offerings, which have, on past occasions, led to business wins and losses. In addition, as a result of competitive bidding processes, we may not be able to increase or maintain the margins at which we sell our products to our customers.

Organizational Restructuring

Over the past several years, we have engaged in a series of restructuring programs related to exiting certain geographies and non-core businesses, consolidating certain internal support functions and engaging in other actions designed to reduce our cost structure and improve productivity. These initiatives primarily consist of severance actions and lease termination costs. Management continues to evaluate our business; therefore, in future years, there may be additional provisions for new plan initiatives, as well as changes in previously recorded estimates, as payments are made or actions are completed. Asset impairment charges were also incurred in connection with these restructuring actions for those assets sold, abandoned or made obsolete as a result of these programs.

~~Table of Contents~~

~~MASONITE INTERNATIONAL CORPORATION~~

In February 2019, we began implementing a plan to improve overall business performance that includes the reorganization of our manufacturing capacity and a reduction of our overhead and selling, general and administration workforce across all of our reportable segments and in our head offices. The reorganization of our manufacturing capacity involves specific plants in the North American Residential and Architectural segments and costs associated with the closure of these plants and related headcount reductions began taking place in the first quarter of 2019 (collectively, the "2019 Plan"). Costs associated with the 2019 Plan include severance, retention and closure charges and will continue through 2020. Additionally, the plan ~~to divest non-core assets~~ was determined to be a triggering event requiring a test of the carrying value of the definite-lived assets relating to the divestitures, as further described in Note 9. As of ~~March 29,~~September 27, 2020, we expect to incur approximately $5$3 million to $6$4 million of additional charges related to the 2019 Plan. Once fully implemented, the actions taken as part of the 2019 Plan are expected to increase our annual earnings and cash flows by approximately $17 million to $21 million.

During the fourth quarter of 2018, we began implementing a plan to reorganize and consolidate certain aspects of our United Kingdom head office function and optimize our portfolio by divesting non-core assets to enable more effective and consistent business processes in the Europe segment. In addition, in the North American Residential segment we announced a new facility that will optimize and expand capacity through increased automation, which resulted in the closure of one existing facility and related headcount reductions beginning in the second quarter of 2019 (collectively, the "2018 Plan"). Costs associated with the 2018 Plan include severance, retention and closure charges and continued throughout 2019. Additionally, the plan to divest non-core assets was determined to be a triggering event requiring a test of the carrying value of the definite-lived assets relating to the divestitures, as further described in Note 9. The actions taken as part of the 2018 Plan are expected to increase our annual earnings and cash flows by approximately $6 million.

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Inflation

An increase in inflation could have a significant impact on the cost of our raw material inputs. Wage inflation, increased prices for raw materials or finished goods used in our products, tariffs and/or interruptions in deliveries of raw materials or finished goods could adversely affect our profitability, margins and net sales, particularly if we are not able to pass these incurred costs on to our customers.Additionally, anti-dumping and countervailing duty trade cases, such as the January 8, 2020, Coalition of American Millwork Producers anti-dumping and countervailing duty petitions against Wood Mouldings and Millwork Products from Brazil and China, is expected to impact our business and results of operations.

Seasonality

Our business is moderately seasonal and our net sales vary from quarter to quarter based upon the timing of the building season in our markets. Severe weather conditions in any quarter, such as unusually prolonged warm or cold conditions, rain, blizzards or hurricanes, could accelerate, delay or halt construction and renovation activity.

Acquisitions and Divestitures

We are pursuing a strategic initiative of optimizing our global business portfolio. As part of this strategy, in the last several years we have pursued strategic acquisitions targeting companies who produce components for our existing operations, manufacture niche products and provide value-added services. Additionally, we target companies with strong brands, complementary technologies, attractive geographic footprints and opportunities for cost and distribution synergies. We also continuously analyze our operations to determine which businesses, market channels and products create the most value for our customers and acceptable returns for our shareholders.

Acquisitions

•~~Top Doors~~On August 31, 2020, we acquired intellectual property and other assets related to an interior door technology for cash consideration of $1.9 million.

•:On August 29, 2019, we completed the acquisition of TOPDOORS, s.r.o. ("Top Doors") based in the Czech Republic for cash consideration of $1.8 million, net of cash acquired, following a post-closing adjustment. Top Doors is a specialist manufacturer of door frames.

Divestitures

•~~Window Widgets~~During the second quarter of 2020, we completed the liquidation of our legal entity in India. As a result, we recognized $2.1 million in loss on disposal of subsidiaries.

•: On December 13, 2019, we completed the sale of all the capital stock of Window Widgets Limited ("WW"), a leading United Kingdom provider of high quality window systems, for consideration of $1.2 million, net of cash disposed.

•~~PDS:~~ On March 21, 2019, we completed the sale of all of the capital stock of Performance Doorset Solutions Limited ("PDS"), a leading supplier of custom doors and millwork in the United Kingdom, for nominal consideration. The divestiture of this business resulted in a loss on deconsolidation of $4.6 million, which was recognized during the first quarter of 2019 in the Europe segment.

2223

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Results of Operations


		Three Months Ended										Three Months Ended						Nine Months Ended
(In thousands)	(In thousands)	March 29, 2020			March 31, 2019			(In thousands)	September 27, 2020			September 29, 2019			September 27, 2020			September 29, 2019
Net sales	Net sales	$	551,228		$	530,311		Net sales	$	587,652		$	552,192		$	1,638,538		$	1,645,446
Cost of goods sold	Cost of goods sold	416,947			418,207			Cost of goods sold	427,331			426,588			1,207,582			1,278,808
Gross profit	Gross profit	134,281			112,104			Gross profit	160,321			125,604			430,956			366,638
Gross profit as a % of net sales	Gross profit as a % of net sales	24.4		%	21.1		%	Gross profit as a % of net sales	27.3		%	22.7		%	26.3		%	22.3		%
Selling, general and administration expenses	Selling, general and administration expenses	80,333			78,100			Selling, general and administration expenses	118,354			77,573			272,077			233,815
Selling, general and administration expenses as a % of net sales	Selling, general and administration expenses as a % of net sales	14.6		%	14.7		%	Selling, general and administration expenses as a % of net sales	20.1		%	14.0		%	16.6		%	14.2		%
Restructuring costs	Restructuring costs	1,941			3,740			Restructuring costs	1,895			1,994			4,984			7,095
Asset impairment	Asset impairment	—			10,625			Asset impairment	51,515			—			51,515			13,767
Loss on disposal of subsidiaries	Loss on disposal of subsidiaries	—			4,605			Loss on disposal of subsidiaries	—			—			2,091			4,605
Operating income		52,007			15,034
Operating income (loss)								Operating income (loss)	(11,443)			46,037			100,289			107,356
Interest expense, net	Interest expense, net	11,282			11,127			Interest expense, net	11,805			11,909			34,911			34,393

Loss on extinguishment of debt								Loss on extinguishment of debt	—			14,523			—			14,523
Other expense (income), net	Other expense (income), net	49			(1,130)			Other expense (income), net	(1,953)			(824)			(3,350)			(2,410)
Income before income tax expense		40,676			5,037
Income tax expense		9,639			58
Net income		31,037			4,979
Income (loss) before income tax expense								Income (loss) before income tax expense	(21,295)			20,429			68,728			60,850
Income tax expense (benefit)								Income tax expense (benefit)	(804)			4,334			23,522			14,685
Net income (loss)								Net income (loss)	(20,491)			16,095			45,206			46,165
Less: net income attributable to non-controlling interests	Less: net income attributable to non-controlling interests	1,152			1,190			Less: net income attributable to non-controlling interests	1,275			1,126			3,090			3,165
Net income attributable to Masonite		$	29,885		$	3,789
Net income (loss) attributable to Masonite								Net income (loss) attributable to Masonite	$	(21,766)		$	14,969		$	42,116		$	43,000

Three Months Ended ~~March 29,~~September 27, 2020, Compared with Three Months Ended ~~March 31,~~September 29, 2019

Net Sales

Net sales in the three months ended ~~March 29,~~September 27, 2020, were ~~$551.2~~$587.7 million, an increase of ~~$20.9~~$35.5 million or ~~3.9%~~6.4% from ~~$530.3~~$552.2 million in the three months ended ~~March 31,~~September 29, 2019. Net sales in the ~~first~~third quarter of 2020 were ~~negatively~~positively impacted by ~~$2.1~~$1.0 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have increased by ~~$23.0 million.~~$34.5 million or 6.2% due to changes in volume, average unit price, acquisitions and divestitures and sales of components and other products. Average unit price increased net sales in the ~~first~~third quarter of 2020 by ~~$20.9~~$51.2 million or ~~3.9%~~9.3% compared to the 2019 period. ~~Higher~~Net sales of components and other products to external customers increased $2.3 million or 0.4% in the third quarter of 2020 compared to the 2019 period. Lower volumes excluding the incremental impact of acquisitions and divestitures ("base volume") ~~increased~~decreased net sales by ~~$9.4~~$14.6 million or ~~1.8%~~2.6% in the ~~first~~third quarter of 2020 compared to the 2019 period. Our 2019 ~~divestitures,~~divestiture, net of acquisition, decreased net sales by ~~$7.3~~$4.4 million or ~~1.4%~~0.8% in the ~~first~~third quarter of 2020. ~~Net sales of components and other products to external customers were flat in the first quarter of 2020 compared to the 2019 period.~~

~~Net Sales and Percentage of Net Sales by Reportable Segment~~

Three Months Ended March 29, 2020
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Sales $ 384,445 $ 71,156 $ 94,555 $ 5,427 $ 555,583
Intersegment sales (588) (430) (3,337) — (4,355)
Net sales to external customers $ 383,857 $ 70,726 $ 91,218 $ 5,427 $ 551,228
Percentage of consolidated external net sales 69.6 % 12.8 % 16.5 %

2324

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Three Months Ended March 31, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Sales $ 354,802 $ 84,739 $ 88,353 $ 6,728 $ 534,622
Intersegment sales (1,077) (472) (2,762) — (4,311)
Net sales to external customers $ 353,725 $ 84,267 $ 85,591 $ 6,728 $ 530,311
Percentage of consolidated external net sales 66.7 % 15.9 % 16.1 %
Net Sales and Percentage of Net Sales by Reportable Segment


	Three Months Ended September 27, 2020
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Sales	$	421,186		$	75,192		$	92,021		$	6,100	$	594,499
Intersegment sales	(654)			(910)			(5,283)			—		(6,847)
Net sales to external customers	$	420,532		$	74,282		$	86,738		$	6,100	$	587,652
Percentage of consolidated external net sales	71.6		%	12.6		%	14.8		%


	Three Months Ended September 29, 2019
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Sales	$	374,612		$	76,308		$	100,707		$	5,814	$	557,441
Intersegment sales	(701)			(343)			(4,205)			—		(5,249)
Net sales to external customers	$	373,911		$	75,965		$	96,502		$	5,814	$	552,192
Percentage of consolidated external net sales	67.7		%	13.8		%	17.5		%

North American Residential

Net sales to external customers from facilities in the North American Residential segment in the three months ended ~~March 29,~~September 27, 2020, were ~~$383.9~~$420.5 million, an increase of ~~$30.2~~$46.6 million or ~~8.5%~~12.5% from ~~$353.7~~$373.9 million in the three months ended ~~March 31,~~September 29, 2019. Net sales in the ~~first~~third quarter of 2020 were negatively impacted by ~~$0.7~~$2.2 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have increased by ~~$30.9~~$48.8 million or ~~8.7%~~13.1% due to changes in volume, average unit price and sales of components and other products. Average unit price increased net sales in the third quarter of 2020 by $46.7 million or 12.5% compared to the 2019 period primarily as a result of our previously communicated price increases that became effective on February 3, 2020. Higher base volume increased net sales in the ~~first~~third quarter of 2020 by ~~$18.2~~$0.8 million or ~~5.1%~~0.2% compared to the 2019 period. Net sales of components and other products to external customers were $1.3 million higher in the third quarter of 2020 compared to the 2019 period.

Europe

Net sales to external customers from facilities in the Europe segment in the three months ended September 27, 2020, were $74.3 million, a decrease of $1.7 million or 2.2% from $76.0 million in the three months ended September 29, 2019. Net sales in the third quarter of 2020 were positively impacted by $3.3 million as a result of foreign exchange fluctuations. Excluding this exchange rate impact, net sales would have decreased by $5.0 million or 6.6% due to changes in volume, average unit price, acquisitions and divestitures and sales of components and other products. Net sales in the third quarter of 2020 were reduced by $4.4 million or 5.8% due to the net impact of the divestiture of a non-core business in 2019, partially offset by incremental sales from the Top Doors acquisition. Lower base volume decreased net sales by $1.9 million or 2.5% in the third quarter of 2020 compared to the 2019 period. Net sales of components and other products to external customers were $0.9 million higher in the third quarter of 2020 compared to the 2019 period. Average unit price increased net sales in the third quarter of 2020 by $0.4 million or 0.5% compared to the 2019 period.

Architectural

Net sales to external customers from facilities in the Architectural segment in the three months ended September 27, 2020, were $86.7 million, a decrease of $9.8 million or 10.2% from $96.5 million in the three months ended September 29, 2019. Net sales in the third quarter of 2020 were negatively impacted by $0.1 million as a result of foreign exchange fluctuations. Excluding this exchange rate impact, net sales would have decreased by $9.7 million or 10.1% due to changes in volume, average unit price and sales of components and other products. Lower base volume

Table of Contents

MASONITE INTERNATIONAL CORPORATION

decreased net sales in the third quarter of 2020 by $13.7 million or 14.2% compared to the 2019 period primarily as a result of COVID-19. Net sales of components and other products to external customers were $0.1 million lower in the third quarter of 2020 compared to the 2019 period. Average unit price increased net sales in the third quarter of 2020 by $4.1 million or 4.2% compared to the 2019 period.

Cost of Goods Sold

Cost of goods sold as a percentage of net sales was 72.7% and 77.3% for the three months ended September 27, 2020, and September 29, 2019, respectively. Material cost of sales, direct labor costs, overhead and distribution costs as a percentage of net sales decreased by 3.2%, 1.1%, 0.2% and 0.1% respectively, compared to the 2019 period. Depreciation as a percentage of sales in the third quarter of 2020 was flat as a percentage of sales compared to the third quarter of 2019. The decrease in material cost of sales as a percentage of net sales was driven by higher average unit prices and material cost savings projects that more than offset investments in quality and commodity inflation. Direct labor as a percentage of net sales decreased due to ~~strong end market demand.~~prior year restructuring actions, partially offset by manufacturing wage inflation. The decrease in overhead as a percentage of net sales was driven by higher average unit prices, partially offset by wage inflation and increased plant maintenance.

Selling, General and Administration Expenses

In the three months ended September 27, 2020, selling, general and administration ("SG&A") expenses, as a percentage of net sales, were 20.1%, as compared to 14.0% in the three months ended September 29, 2019, an increase of 610 basis points.

SG&A expenses in the three months ended September 27, 2020, were $118.4 million, an increase of $40.8 million from $77.6 million in the three months ended September 29, 2019. The overall increase was driven by a $37.8 million legal reserve related to the previously disclosed settlement of U.S. class action litigation, a $6.4 million increase in personnel costs primarily due to incentive compensation and resource investments to support growth, unfavorable foreign exchange impacts of $0.5 million and a net $0.7 million increase in non-cash items in SG&A expenses, including share based compensation, loss (gain) on disposal of property, plant and equipment, deferred compensation and depreciation and amortization. These increases were partially offset by a $2.4 million decrease in travel expense and a $0.5 million decrease in advertising expense as a result of COVID-19, as well as a $1.3 million decrease in professional and other fees and incremental SG&A savings from our 2019 divestitures (net of acquisition) of $0.4 million.

Restructuring Costs

Restructuring costs in the three months ended September 27, 2020, and September 29, 2019, were $1.9 million and $2.0 million, respectively. Restructuring costs in the current year related primarily to the 2019 Plan. Restructuring costs in the prior year period related to the 2019 and 2018 Plans.

Asset Impairment

Asset impairment charges in the three months ended September 27, 2020, were $51.5 million, and represent a goodwill impairment charge recorded in our Architectural reporting unit. Refer to Note 10. Asset Impairment, in Item 1 of this Quarterly Report for additional information. There were no asset impairment charges in the three months ended September 29, 2019.

Loss on Disposal of Subsidiaries

There was no loss on disposal of subsidiaries in the three months ended September 27, 2020, and September 29, 2019.

Interest Expense, Net

Interest expense, net, in the three months ended September 27, 2020, was $11.8 million, compared to $11.9 million in the three months ended September 29, 2019, remaining relatively flat as compared to the 2019 period.

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Loss on Extinguishment of Debt

There was no loss on extinguishment of debt in the three months ended September 27, 2020. Loss on extinguishment of debt was $14.5 million in the three months ended September 29, 2019. Loss on extinguishment of debt in the prior year was related to the redemption of our senior unsecured notes due 2023.

Other Expense (Income), Net

Other expense (income), net, in the three months ended September 27, 2020, was $2.0 million of income, compared to $0.8 million of income in the three months ended September 29, 2019. The change in other expense (income), net is primarily due to a change in the fair value of plan assets in the deferred compensation rabbi trust and a decrease in pension expense.

Income Tax Expense

Income tax benefit in the three months ended September 27, 2020, was $0.8 million, compared to $4.3 million of income tax expense in the three months ended September 29, 2019. The decrease in income tax expense is primarily due to the mix of income or losses within the tax jurisdictions with various tax rates in which we operate. We recognized discrete items resulting in$1.2 million of income tax expense in the three months ended September 27, 2020, compared to $0.8 million of income tax benefit recorded in the three months ended September 29, 2019. The discrete income tax expense for the period is primarily attributable to a change in tax rate applied to certain deferred tax assets and liabilities.

Segment Information


	Three Months Ended September 27, 2020
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Adjusted EBITDA	$	97,492		$	15,021		$	11,126		$	(14,639)	$	109,000
Adjusted EBITDA as a percentage of segment net sales	23.2		%	20.2		%	12.8		%			18.5		%


	Three Months Ended September 29, 2019
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Adjusted EBITDA	$	61,549		$	10,645		$	13,920		$	(10,270)	$	75,844
Adjusted EBITDA as a percentage of segment net sales	16.5		%	14.0		%	14.4		%			13.7		%

Table of Contents

MASONITE INTERNATIONAL CORPORATION

The following reconciles net income (loss) attributable to Masonite to Adjusted EBITDA:


	Three Months Ended September 27, 2020
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
Net income (loss) attributable to Masonite	$	85,889	$	9,655	$	(45,074)	$	(72,236)	$	(21,766)
Plus:
Depreciation	8,868		2,437		3,088		3,488		17,881
Amortization	508		3,354		1,268		389		5,519
Share based compensation expense	—		—		—		6,299		6,299
Loss (gain) on disposal of property, plant and equipment	(391)		(317)		247		45		(416)
Restructuring costs	1,746		—		82		67		1,895
Asset impairment	—		—		51,515		—		51,515

Interest expense, net	—		—		—		11,805		11,805

Other expense (income), net	—		(108)		—		(1,845)		(1,953)
Income tax expense	—		—		—		(804)		(804)
Other items (1)	—		—		—		37,750		37,750
Net income attributable to non-controlling interest	872		—		—		403		1,275
Adjusted EBITDA	$	97,492	$	15,021	$	11,126	$	(14,639)	$	109,000

____________

(1) Other items not part of our underlying business performance include $37,750 in legal reserves related to the previously disclosed settlement of U.S. class action litigation in the three months ended September 27, 2020, and were recorded in selling, general and administration expenses within the condensed consolidated statements of comprehensive income (loss). Refer to Note 7. Commitments and Contingencies, in Item 1 of this Quarterly Report for additional information.


	Three Months Ended September 29, 2019
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
Net income (loss) attributable to Masonite	$	49,525	$	3,794	$	9,263	$	(47,613)	$	14,969
Plus:
Depreciation	8,582		2,916		2,566		2,295		16,359
Amortization	377		3,494		2,059		1,124		7,054
Share based compensation expense	—		—		—		3,695		3,695
Loss on disposal of property, plant and equipment	646		57		—		2		705
Restructuring costs	1,761		257		32		(56)		1,994


Interest expense, net	—		—		—		11,909		11,909
Loss on extinguishment of debt	—		—		—		14,523		14,523
Other expense (income), net	(86)		127		—		(865)		(824)
Income tax expense	—		—		—		4,334		4,334
Net income attributable to non-controlling interest	744		—		—		382		1,126
Adjusted EBITDA	$	61,549	$	10,645	$	13,920	$	(10,270)	$	75,844

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Adjusted EBITDA in our North American Residential segment increased $35.9 million, or 58.4%, to $97.5 million in the three months ended September 27, 2020, from $61.5 million in the three months ended September 29, 2019. Adjusted EBITDA in the North American Residential segment included corporate allocations of shared costs of $16.3 million and $14.0 million, in the third quarter of 2020 and 2019, respectively. The allocations generally consist of certain costs of human resources, legal, finance, information technology, research and development and share based compensation.

Adjusted EBITDA in our Europe segment increased $4.4 million, or 41.1%, to $15.0 million in the three months ended September 27, 2020, from $10.6 million in the three months ended September 29, 2019. Adjusted EBITDA in the Europe segment included corporate allocations of shared costs of $0.3 million in both the third quarter of 2020 and 2019. The allocations generally consist of certain costs of human resources, legal, finance and information technology.

Adjusted EBITDA in our Architectural segment decreased $2.8 million, or 20.1%, to $11.1 million in the three months ended September 27, 2020, from $13.9 million in the three months ended September 29, 2019. Adjusted EBITDA in the Architectural segment also included corporate allocations of shared costs of $2.7 million in both the third quarter of 2020 and 2019. The allocations generally consist of certain costs of human resources, legal, finance, information technology and research and development.

Nine Months Ended September 27, 2020, Compared with Nine Months Ended September 29, 2019

Net Sales

Net sales in the nine months ended September 27, 2020, were $1,638.5 million, a decrease of $6.9 million or 0.4% from $1,645.4 million in the nine months ended September 29, 2019. Net sales in the first nine months of 2020 were negatively impacted by $6.1 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have decreased by $0.8 million and were flat due to changes in volume, average unit price, acquisitions and divestitures and sales of components and other products. Lower base volumes decreased net sales by $91.9 million or 5.6% in the first nine months of 2020 compared to the same period in 2019. Our 2019 divestitures, net of acquisition, decreased net sales by $16.0 million or 1.0% in the first nine months of 2020. Net sales of components and other products to external customers were $4.5 million lower in the first nine months of 2020 compared to the same period in 2019. Average unit price increased net sales in the first ~~quarter~~nine months of 2020 by ~~$12.3~~$111.6 million or ~~3.5%~~6.8% compared to the same period in 2019.

Net Sales and Percentage of Net Sales by Reportable Segment


	Nine Months Ended September 27, 2020
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Sales	$	1,187,239		$	176,778		$	275,972		$	14,493	$	1,654,482
Intersegment sales	(1,685)			(1,882)			(12,377)			—		(15,944)
Net sales to external customers	$	1,185,554		$	174,896		$	263,595		$	14,493	$	1,638,538
Percentage of consolidated external net sales	72.4		%	10.7		%	16.1		%


	Nine Months Ended September 29, 2019
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Sales	$	1,109,919		$	242,408		$	290,206		$	17,741	$	1,660,274
Intersegment sales	(2,673)			(1,223)			(10,932)			—		(14,828)
Net sales to external customers	$	1,107,246		$	241,185		$	279,274		$	17,741	$	1,645,446
Percentage of consolidated external net sales	67.3		%	14.7		%	17.0		%

Table of Contents

MASONITE INTERNATIONAL CORPORATION

North American Residential

Net sales to external customers from facilities in the North American Residential segment in the nine months ended September 27, 2020, were $1,185.6 million, an increase of $78.4 million or 7.1% from $1,107.2 million in the nine months ended September 29, 2019. Net sales in the first nine months of 2020 were negatively impacted by $6.6 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have increased by $85.0 million or 7.7% due to changes in volume, average unit price and sales of components and other products. Average unit price increased net sales in the first nine months of 2020 by $94.9 million or 8.6% compared to the 2019 period primarily as a result of our previously communicated price increases that became effective on February 3, 2020. Net sales of components and other products to external customers were ~~$0.4~~$0.8 million higher in the first ~~quarter~~nine months of 2020 compared to the ~~2019 period.~~same period in 2019. Lower base volume decreased net sales by $10.7 million or 1.0% in the first nine months of 2020 compared to the same period in 2019.

Europe

Net sales to external customers from facilities in the Europe segment in the ~~three~~nine months ended ~~March 29,~~September 27, 2020, were ~~$70.7~~$174.9 million, a decrease of ~~$13.6~~$66.3 million or ~~16.1%~~27.5% from ~~$84.3~~$241.2 million in the ~~three~~nine months ended ~~March 31,~~September 29, 2019. Net sales in ~~the first quarter of~~ 2020 were ~~negatively~~positively impacted by ~~$1.3~~$1.1 million as a result of foreign exchange fluctuations. Excluding this exchange rate impact, net sales would have decreased by ~~$12.3~~$67.4 million or ~~14.6%~~27.9% due to changes in volume, average unit price, acquisitions and divestitures and sales of components and other products. Lower base volume, primarily due to our manufacturing facilities being closed approximately half of the second quarter and other impacts as a result of COVID-19, decreased net sales in the first nine months of 2020 by $52.6 million or 21.8% compared to the same period in 2019. Net sales in the first ~~quarter~~nine months of 2020 were reduced by ~~$7.3~~$16.0 million or ~~8.7%~~6.6% due to the net impact of divestitures and an acquisition, including ~~lost sales due to~~ the divestitures of three non-core businesses in 2019, partially offset by incremental sales from the Top Doors acquisition. ~~Lower base volume decreased~~Average unit price increased net sales ~~by $7.0 million or 8.3%~~ in the first ~~quarter~~nine months of 2020 by $1.0 million or 0.4% compared to the ~~2019~~same period ~~partially due to share declines~~ in ~~the builder channel and all of our United Kingdom manufacturing facilities closing the last week of the quarter as a result of COVID-19.~~2019. Net sales of components and other products to external customers were ~~$0.3~~$0.2 million ~~lower~~higher in the first ~~quarter~~nine months of 2020 compared to the ~~2019 period. Average unit price increased net sales~~same period in ~~the first quarter of 2020 by $2.3 million or 2.7% compared to the 2019 period.~~2019.

Architectural

Net sales to external customers from facilities in the Architectural segment in the ~~three~~nine months ended ~~March 29,~~September 27, 2020, were ~~$91.2~~$263.6 million, ~~an increase~~a decrease of ~~$5.6~~$15.7 million or ~~6.5%~~5.6% from ~~$85.6~~$279.3 million in the ~~three~~nine months ended ~~March 31,~~September 29, 2019. Net sales in ~~the first quarter of~~ 2020 were negatively impacted by ~~$0.1~~$0.5 million as a result of foreign exchange fluctuations. Excluding this exchange rate impact, net sales would have ~~increased~~decreased by ~~$5.7~~$15.2 million or ~~6.7%. Average~~5.4% due to changes in volume, average unit price ~~increased~~and sales of components and other products. Lower base volume decreased net sales in the first ~~quarter~~nine months of 2020 by ~~$6.3~~$29.0 million or ~~7.4%~~10.4% compared to the 2019 period primarily ~~due to delivery~~as a result of ~~projects at higher prices along with improved mix.~~COVID-19. Net sales of components and other products to external customers ~~were $0.7~~decreased net sales by $1.9 million ~~higher~~or 0.7% in the first ~~quarter~~nine months of 2020 compared to the ~~2019 period. Lower base volume decreased~~same period in 2019. Average unit price increased net sales in the first ~~quarter~~nine months of 2020 by ~~$1.3~~$15.7 million or ~~1.5%~~5.6% compared to the 2019 ~~period primarily due to our focus on more complex projects involving lower volumes but a higher-value mix of products.~~

~~Table of Contents~~

~~MASONITE INTERNATIONAL CORPORATION~~

period.

Cost of Goods Sold

Cost of goods sold as a percentage of net sales was ~~75.6%~~73.7% and ~~78.9%~~77.7% for the ~~three~~nine months ended ~~March 29,~~September 27, 2020, and ~~March 31,~~September 29, 2019, respectively. Material cost of sales, direct labor and distribution costs as a percentage of net sales in the first nine months of 2020 decreased by 3.4%, 0.7% and 0.1%, respectively. Partially offsetting these decreases, overhead as a percentage of net sales ~~decreased~~increased by ~~2.8%, 0.4% and~~ 0.2%~~, respectively,~~ compared to the 2019 period. ~~Partly offsetting these decreases, distribution costs~~Depreciation in the first ~~quarter~~nine months of 2020 ~~increased by 0.1%~~was flat as a percentage of sales compared to the first ~~quarter~~nine months of 2019. ~~Depreciation as a percentage of sales remained flat as compared to the 2019 period.~~ The decrease in material cost of sales as a percentage of net sales was driven by higher average unit prices and ~~net deflation as a result of~~ material cost savings projects that more than offset commodity inflation, ~~and~~ an increase in ~~tariffs.~~tariffs and investments in quality. Direct labor as a percentage of net sales decreased due to ~~factory productivity initiatives.~~prior year restructuring actions, partially offset by manufacturing wage inflation. Overhead as a percentage of net sales was negatively impacted by decreased ~~due~~volumes, wage inflation and increased plant maintenance, partially offset by higher average unit prices as compared to ~~increased volumes.~~the 2019 period.

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Selling, General and Administration Expenses

In the ~~three~~nine months ended ~~March 29,~~September 27, 2020, selling, general and administration ("SG&A") expenses, as a percentage of net sales, were ~~14.6%, as~~16.6% compared to ~~14.7% in~~14.2% the ~~three~~nine months ended ~~March 31,~~September 29, 2019, ~~a decrease~~an increase of 10240 basis points.

SG&A expenses in the ~~three~~nine months ended ~~March 29,~~September 27, 2020, were ~~$80.3~~$272.1 million, an increase of ~~$2.2~~$38.3 million from ~~$78.1~~$233.8 million in the ~~three~~nine months ended ~~March 31,~~September 29, 2019. The overall increase was driven by an$37.8 million legal reserve related to the previously disclosed settlement of U.S. class action litigation, a $9.0 million increase in personnel costs ~~of $3.5 million,~~ primarily due to incentive compensation and resource investments to support growth, ~~costs related to employee benefits and incentive compensation, along with~~ a ~~$3.4~~$3.3 million increase in professional and other fees including legal costs ~~related to a~~associated with the previously disclosed ~~lawsuit.~~litigation and unfavorable foreign exchange impacts of $0.1 million. These increases were partially offset by a ~~net $3.8~~$6.2 million reduction in travel expense and a $2.8 million decrease in advertising expense as a result of COVID-19, as well as a $1.6 million decrease in non-cash items ~~in SG&A expenses,~~ including depreciation and amortization, deferred compensation, loss on disposal of property, plant and equipment ~~deferred compensation,~~ and share based compensation and $1.3 million of incremental SG&A savings from our 2019 divestitures (net of acquisition) ~~of $0.7 million and favorable foreign exchange impacts of $0.2 million.~~.

Restructuring Costs

Restructuring costs in the ~~three~~nine months ended ~~March 29,~~September 27, 2020, ~~and March 31, 2019,~~ were ~~$1.9~~$5.0 million, ~~and $3.7~~compared to $7.1 million ~~respectively. Restructuring costs~~ in the ~~current year related primarily to the 2019 Plan. Restructuring costs in the prior year period related to the 2019 and 2018 Plans.~~nine months ended September 29, 2019.

Asset Impairment

~~There were no asset impairment charges in the three months ended March 29, 2020.~~ Asset impairment charges in the ~~three~~nine months ended ~~March 31,~~September 27, 2020, were $51.5 million, and represent a goodwill impairment charge recorded in our Architectural reporting unit. Refer to Note 10. Asset Impairment, in Item 1 of this Quarterly Report for additional information. Asset impairment charges in the nine months ended September 29, 2019, were ~~$10.6 million and~~$13.8 million. Asset impairment charges in 2019 resulted from actions associated with the 2019 Plan.

Loss on Disposal of Subsidiaries

~~There was no loss on disposal of subsidiaries in the three months ended March 29, 2020.~~ Loss on disposal of subsidiaries in the ~~three~~nine months ended ~~March 31, 2019,~~September 27, 2020, was $2.1 million, compared to $4.6 ~~million.~~million in the nine months ended September 29, 2019. The current year loss arose as a result of the liquidation of our legal entity in India and is comprised of the recognition of the cumulative translation adjustment out of accumulated other comprehensive loss of $2.3 million and $0.2 million relating to the write-off of net assets and other professional fees. The loss in the prior year was related to the sale of PDS for nominal consideration during the first ~~quarter~~nine months of 2019. The total charge consisted of $3.6 million relating to the write-off of the net assets sold and other professional fees and $1.0 million relating to the recognition of the cumulative translation adjustment out of accumulated other comprehensive loss.

Interest Expense, Net

Interest expense, net, in the ~~three~~nine months ended ~~March 29,~~September 27, 2020, was ~~$11.3~~$34.9 million, compared to ~~$11.1~~$34.4 million in the ~~three~~nine months ended ~~March 31,~~September 29, 2019, remaining relatively flat as compared to the 2019 period.

Loss on Extinguishment of Debt

There was no loss on extinguishment of debt in the nine months ended September 27, 2020. Loss on extinguishment of debt was $14.5 million in the nine months ended September 29, 2019. Loss on extinguishment of debt in the prior year was related to the redemption of our senior unsecured notes due 2023.

Other Expense (Income), Net

Other expense (income), net, in the ~~three~~nine months ended ~~March 29,~~September 27, 2020, was ~~minimal as~~$3.4 million of income, compared to ~~$1.1~~$2.4 million of income in the ~~three~~nine months ended ~~March 31, 2019,~~September 29, 2019. The change in other expense (income), net is primarily due to a decrease in pension expense and an increase in other miscellaneous non-operating income net of expenses, partially offset by a change in our portion of the net gains and losses related to our non-majority owned unconsolidated subsidiaries that are recognized under the equity method of accounting and a change in the fair value of plan assets in the deferred compensation rabbi trust.

2531

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Income Tax Expense

Our income tax expense in the ~~three~~nine months ended ~~March 29,~~September 27, 2020, was ~~$9.6~~$23.5 million, compared to ~~$0.1~~$14.7 million of income tax expense in the ~~three~~nine months ended ~~March 31,~~September 29, 2019. The increase in income tax expense is primarily due to the mix of income or losses within the tax jurisdictions with various tax rates in which we operate, as well as a decrease in discrete income tax benefits. We recognized discrete items resulting in income tax ~~benefit~~expense of ~~$0.4~~$1.1 million in the ~~three~~nine months ended ~~March 29,~~September 27, 2020, compared to ~~$1.0~~$1.3 million of income tax benefit recorded in the ~~three~~nine months ended ~~March 31,~~September 29, 2019. The discrete income tax expense for the period is primarily attributable to a change in tax rate applied to certain deferred tax assets and liabilities.

Segment Information


		Three Months Ended March 29, 2020																										Nine Months Ended September 27, 2020
(In thousands)	(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total			(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Adjusted EBITDA	Adjusted EBITDA	$	71,696		$	9,679		$	10,582		$	(10,440)	$	81,517		Adjusted EBITDA	$	260,319		$	23,782		$	33,208		$	(34,900)	$	282,409
Adjusted EBITDA as a percentage of segment net sales	Adjusted EBITDA as a percentage of segment net sales	18.7		%	13.7		%	11.6		%			14.8		%	Adjusted EBITDA as a percentage of segment net sales	22.0		%	13.6		%	12.6		%			17.2		%

Three Months Ended March 31, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Adjusted EBITDA $ 53,621 $ 9,997 $ 7,614 $ (5,753) $ 65,479
Adjusted EBITDA as a percentage of segment net sales 15.2 % 11.9 % 8.9 % 12.3 %

~~The following reconciles net income (loss) attributable to Masonite to Adjusted EBITDA:~~

Three Months Ended March 29, 2020
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net income (loss) attributable to Masonite $ 58,811 $ 3,483 $ 4,580 $ (36,989) $ 29,885
Plus:
Depreciation 9,364 2,457 2,822 1,375 16,018
Amortization 595 3,562 1,922 380 6,459
Share based compensation expense — — — 3,470 3,470
Loss on disposal of property, plant and equipment 1,204 3 396 19 1,622
Restructuring costs 849 (37) 862 267 1,941
Interest expense, net — — — 11,282 11,282
Other expense (income), net — 211 — (162) 49
Income tax expense — — — 9,639 9,639
Net income attributable to non-controlling interest 873 — — 279 1,152
Adjusted EBITDA $ 71,696 $ 9,679 $ 10,582 $ (10,440) $ 81,517


	Nine Months Ended September 29, 2019
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Adjusted EBITDA	$	178,571		$	34,050		$	34,312		$	(25,877)	$	221,056
Adjusted EBITDA as a percentage of segment net sales	16.1		%	14.1		%	12.3		%			13.4		%

2632

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Three Months Ended March 31, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net income (loss) attributable to Masonite $ 30,261 $ (4,147) $ 2,079 $ (24,404) $ 3,789
Plus:
Depreciation 9,079 2,382 2,741 4,083 18,285
Amortization 449 3,965 2,093 1,090 7,597
Share based compensation expense — — — 2,680 2,680
Loss on disposal of property, plant and equipment 341 2,469 97 6 2,913
Restructuring costs 1,880 862 604 394 3,740
Asset impairment 10,625 — — — 10,625
Loss on disposal of subsidiaries — 4,605 — — 4,605
Interest expense, net — — — 11,127 11,127
Other expense (income), net — (139) — (991) (1,130)
Income tax expense — — — 58 58
Net income attributable to non-controlling interest 986 — — 204 1,190
Adjusted EBITDA $ 53,621 $ 9,997 $ 7,614 $ (5,753) $ 65,479
The following reconciles net income (loss) attributable to Masonite to Adjusted EBITDA:


	Nine Months Ended September 27, 2020
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
Net income (loss) attributable to Masonite	$	224,541	$	6,762	$	(35,511)	$	(153,676)	$	42,116
Plus:
Depreciation	26,961		7,261		8,687		7,833		50,742
Amortization	1,615		10,186		4,940		1,159		17,900
Share based compensation expense	—		—		—		13,509		13,509
Loss (gain) on disposal of property, plant and equipment	1,319		(307)		2,547		70		3,629
Restructuring costs	3,509		(37)		1,030		482		4,984
Asset impairment	—		—		51,515		—		51,515
Loss on disposal of subsidiaries	—		—		—		2,091		2,091
Interest expense, net	—		—		—		34,911		34,911

Other expense (income), net	—		(83)		—		(3,267)		(3,350)
Income tax expense	—		—		—		23,522		23,522
Other items (1)	—		—		—		37,750		37,750
Net income attributable to non-controlling interest	2,374		—		—		716		3,090
Adjusted EBITDA	$	260,319	$	23,782	$	33,208	$	(34,900)	$	282,409

____________

(1) Other items not part of our underlying business performance include $37,750 in legal reserves related to the previously disclosed settlement of U.S. class action litigation in the nine months ended September 27, 2020, and were recorded in selling, general and administration expenses within the condensed consolidated statements of comprehensive income (loss). Refer to Note 7. Commitments and Contingencies, in Item 1 of this Quarterly Report for additional information.

Table of Contents

MASONITE INTERNATIONAL CORPORATION


	Nine Months Ended September 29, 2019
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
Net income (loss) attributable to Masonite	$	126,615	$	6,831	$	18,528	$	(108,974)	$	43,000
Plus:
Depreciation	27,461		7,652		8,812		8,920		52,845
Amortization	1,263		11,115		6,306		3,296		21,980
Share based compensation expense	—		—		—		8,468		8,468
Loss on disposal of property, plant and equipment	2,097		2,674		146		23		4,940
Restructuring costs	4,954		1,220		518		403		7,095
Asset impairment	13,767		—		—		—		13,767
Loss on disposal of subsidiaries	—		4,605		—		—		4,605
Interest expense, net	—		—		—		34,393		34,393
Loss on extinguishment of debt	—		—		—		14,523		14,523
Other expense (income), net	—		(47)		2		(2,365)		(2,410)
Income tax expense	—		—		—		14,685		14,685
Net income attributable to non-controlling interest	2,414		—		—		751		3,165
Adjusted EBITDA	$	178,571	$	34,050	$	34,312	$	(25,877)	$	221,056

Adjusted EBITDA in our North American Residential segment increased ~~$18.1~~$81.7 million, or ~~33.8%~~45.8%, to ~~$71.7~~$260.3 million in the ~~three~~nine months ended ~~March 29,~~September 27, 2020, from ~~$53.6~~$178.6 million in the ~~three~~nine months ended ~~March 31,~~September 29, 2019. Adjusted EBITDA in the North American Residential segment included corporate allocations of shared costs of ~~$16.3~~$48.8 million and ~~$14.0~~$41.9 million in the first ~~quarter~~nine months of 2020 and 2019, respectively. The allocations generally consist of certain costs of human resources, legal, finance, information technology, research and development and share based compensation.

Adjusted EBITDA in our Europe segment decreased ~~$0.3~~$10.3 million, or ~~3.0%~~30.2%, to ~~$9.7~~$23.8 million in the ~~three~~nine months ended ~~March 29,~~September 27, 2020, from ~~$10.0~~$34.1 million in the ~~three~~nine months ended ~~March 31,~~September 29, 2019. Adjusted EBITDA in the Europe segment included corporate allocations of shared costs of ~~$0.3~~$0.8 million in ~~both~~ the first ~~quarter~~nine months of 2020 and 2019. The allocations generally consist of certain costs of human resources, legal, finance and information technology.

Adjusted EBITDA in our Architectural segment ~~increased $3.0~~decreased $1.1 million, or ~~39.5%~~3.2%, to ~~$10.6~~$33.2 million in the ~~three~~nine months ended ~~March 29,~~September 27, 2020, from ~~$7.6~~$34.3 million in the ~~three~~nine months ended ~~March 31,~~September 29, 2019. Adjusted EBITDA in the Architectural segment also included corporate allocations of shared costs of ~~$2.7~~$8.1 million and $8.0 million in ~~both~~ the first ~~quarter~~nine months of 2020 and ~~2019.~~2019, respectively. The allocations generally consist of certain costs of human resources, legal, finance, information technology and research and development.

Liquidity and Capital Resources

Our liquidity needs for operations vary throughout the year. Our principal sources of liquidity are cash flows from operating activities, the borrowings under our ABL Facility and an accounts receivable sales program with a third party ("AR Sales Program") and our existing cash balance. Our anticipated uses of cash in the near term include working capital needs, capital expenditures for critical maintenance, safety and regulatory projects, and share repurchases. On a continual basis, we evaluate and consider strategic acquisitions, divestitures, and joint ventures to create shareholder value and enhance financial performance.

~~Table of Contents~~

~~MASONITE INTERNATIONAL CORPORATION~~

Due to the ~~rapidly evolving and~~ highly uncertain nature and duration of the ~~COVID-10~~COVID-19 pandemic and its impact on our customers, suppliers and employees, we are unable to fully estimate the extent of the impact it may have on our future financial condition and liquidity. ~~Accordingly, we have taken actions~~We anticipate capital expenditures in fiscal year 2020 will be approximately $60 million to ~~reduce spending and manage cash flow, such~~$70 million as ~~reducing~~compared to our ~~capital spend below the anticipated amount~~original estimate of $70 million to $75 million as previously ~~noted in Key~~disclosed under "Key Factors

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Affecting Our Results of ~~Operations.~~Operations" in our Annual Report on Form 10-K for the year ended December 29, 2019. We believe that our cash balance on hand, future cash generated from operations, the use of our AR Sales Program, our ABL Facility, and ability to access the capital markets will provide adequate liquidity for the foreseeable future. As of ~~March 29,~~September 27, 2020, we had ~~$114.4~~$300.8 million of cash and cash equivalents, availability under our ABL Facility of ~~$185.3~~$205.6 million and availability under our AR Sales Program of ~~$14.8~~$15.4 million.

Cash Flows

Cash provided by operating activities was ~~$6.0~~$219.3 million during the ~~three~~nine months ended ~~March 29,~~September 27, 2020, compared to ~~$18.5~~$138.4 million in the ~~three~~nine months ended ~~March 31,~~September 29, 2019. This ~~$12.5~~$80.9 million ~~decrease~~increase in cash provided by operating activities was due to changes in net working capital, a $23.4 million increase in ~~the first three months of 2020 compared with the same period in 2019, partially offset by~~other assets and liabilities and a ~~$17.4~~$17.7 million increase in net income attributable to Masonite, adjusted for non-cash and non-operating ~~items.~~items in the first nine months of 2020 compared to the same period in 2019.

Cash used in investing activities was ~~$17.8~~$44.5 million during the ~~three~~nine months ended ~~March 29,~~September 27, 2020, compared to ~~$21.2~~$59.1 million in the ~~three~~nine months ended ~~March 31,~~September 29, 2019. This ~~$3.4~~$14.6 million decrease in cash used in investing activities was driven by a ~~$3.2~~$9.7 million decrease in cash additions to property, plant and equipment and a net decrease in other investing outflows of ~~$0.2~~$4.9 million driven by proceeds from sale of property, plant and equipment in the first ~~three~~nine months of 2020 compared to the same period in 2019.

Cash used in financing activities was ~~$37.0~~$41.5 million during the ~~three~~nine months ended ~~March 29,~~September 27, 2020, compared to ~~$34.3~~$84.1 million during the ~~three~~nine months ended ~~March 31,~~September 29, 2019. This ~~$2.7~~$42.5 million ~~increase~~decrease in cash used in financing activities was driven by a ~~$1.6~~$23.6 million ~~increase~~decrease in cash used for repurchases of common shares and a ~~$0.7~~$20.8 million decrease in cash used for debt-related transactions, partially offset by a $1.3 million increase in cash used for tax withholding on share based awards and a $0.6 million increase in distributions to non-controlling interests ~~and an increase in other financing outflows of $0.4 million~~ in the first ~~three~~nine months of 2020 compared to the same period in 2019.

Share Repurchases

We currently have in place a $600.0 million share repurchase authorization, stemming from three separate authorizations by our Board of Directors. During the ~~three~~nine months ended ~~March 29,~~September 27, 2020, we repurchased and retired 567,271 of our common shares in the open market at an aggregate cost of $34.8 million as part of the share repurchase programs, prior to temporarily suspending our repurchase program on March 18, 2020. During the third quarter, the temporary suspension was removed. We did not repurchase any of our common shares in the open market during the three months ended ~~March 31,~~September 27, 2020. During the nine months ended September 29, 2019, we repurchased ~~646,102~~1,148,815 of our common shares in the open market at an aggregate cost of ~~$33.2~~$58.4 million. As of ~~March 29,~~September 27, 2020, there was $109.3 million available for repurchase in accordance with the share repurchase programs.

Other Liquidity Matters

Our cash and cash equivalents balance includes cash held in foreign countries in which we operate. Cash held outside Canada, in which we are incorporated, is free from significant restrictions that would prevent the cash from being accessed to meet our liquidity needs including, if necessary, to fund operations and service debt obligations in Canada. However, earnings from certain jurisdictions are indefinitely reinvested in those jurisdictions. Upon the repatriation of any earnings to Canada, in the form of dividends or otherwise, we may be subject to Canadian income taxes and withholding taxes payable to the various foreign countries. As of ~~March 29,~~September 27, 2020, we do not believe adverse tax consequences exist that restrict our use of cash or cash equivalents in a material manner.

We also routinely monitor the changes in the financial condition of our customers and the potential impact on our results of operations. There has not been a change in the financial condition of aany customer that has had a material adverse effect on our results of operations in the first ~~quarter~~nine months of 2020. However, in light of COVID-19, it is possible there could be an impact on our results of operations in a future period and this impact could be material.

Accounts Receivable Sales Program

Under the AR Sales Program, we can transfer ownership of eligible trade accounts receivable of certain customers. Receivables are sold outright to a third party who assumes the full risk of collection, without recourse to us in the event of a loss. Transfers of receivables under this program are accounted for as sales. Proceeds from the transfers

2835

Table of Contents

MASONITE INTERNATIONAL CORPORATION

reflect the face value of the accounts receivable less a discount. Receivables sold under the AR Sales Program are excluded from trade accounts receivable in the condensed consolidated balance sheets and are included in cash flows from operating activities in the condensed consolidated statements of cash flows. The discounts on the sales of trade accounts receivable sold, if any, under the AR Sales Program were not material for any of the periods presented and were recorded in selling, general and administration expense within the condensed consolidated statements of comprehensive ~~income.~~income (loss).

5.375% Senior Notes due 2028

On July 25, 2019, we issued $500.0 million aggregate principal senior unsecured notes (the "2028 Notes"), all of which was outstanding as of ~~March 29,~~September 27, 2020. The 2028 Notes bear interest at 5.375% per annum. The net proceeds from issuance of the 2028 Notes, together with available cash balances, were used to redeem the remaining $500.0 million aggregate principal amount of similar senior unsecured notes, including the payment of related premiums, fees and expenses. The 2028 Notes were issued under an indenture which contains restrictive covenants that are described in detail in our Annual Report on Form 10-K for the year ended December 29, 2019. As of ~~March 29,~~September 27, 2020, we were in compliance with all covenants under the indenture governing the 2028 Notes.

5.750% Senior Notes due 2026

On August 27, 2018, we issued $300.0 million aggregate principal senior unsecured notes (the "2026 Notes"), all of which were outstanding as of March 29, 2020. The 2026 Notes bear interest at 5.750% per annum. The 2026 Notes were issued under an indenture which contains restrictive covenants that are described in detail in our Annual Report on Form 10-K for the year ended December 29, 2019. As of ~~March 29,~~September 27, 2020, we were in compliance with all covenants under the indenture governing the 2026 Notes.

ABL Facility

On January 31, 2019, we and certain of our subsidiaries entered into a $250.0 million asset-based revolving credit facility (the "ABL Facility") maturing on January 31, 2024, which replaced the previous facility. Borrowings under the ABL Facility bear interest at a rate which is described in more detail in Note 6. The ABL Facility contains various customary representations, warranties by us and covenants that are described in detail in our Annual Report on Form 10-K for the year ended December 29, 2019. As of ~~March 29,~~September 27, 2020, we were in compliance with all covenants under the credit agreement governing the ABL Facility. We had availability of ~~$185.3~~$205.6 million under our ABL Facility and there were no amounts outstanding as of ~~March 29,~~September 27, 2020.

Supplemental Guarantor Financial Information

Our obligations under the 2028 Notes and 2026 Notes and the ABL Facility are fully and unconditionally guaranteed, jointly and severally, by certain of our directly or indirectly wholly-owned subsidiaries. The following unaudited supplemental financial information for our non-guarantor subsidiaries is presented:

Our non-guarantor subsidiaries generated external net sales of ~~$491.9~~$522.4 million and ~~$472.9~~$491.9 million for the three months ended ~~March 29,~~September 27, 2020, and ~~March 31,~~September 29, 2019, ~~respectively.~~respectively, and $1.5 billion for both the nine months ended September 27, 2020, and September 29, 2019. Our non-guarantor subsidiaries generated Adjusted EBITDA of ~~$68.4~~$94.0 million and ~~$57.1~~$65.0 million for the three months ended ~~March 29,~~September 27, 2020, and ~~March 31,~~September 29, 2019, respectively, and $238.7 million and $189.8 million for the nine months ended September 27, 2020, and September 29, 2019, respectively. Our non-guarantor subsidiaries had total assets of ~~$1.9~~$2.1 billion and $2.0 billion as of September 27, 2020, and December 29, 2019, respectively, and total liabilities of ~~$816.0~~$925.8 million and $834.5 million as of ~~March 29,~~September 27, 2020, and December 29, 2019, respectively.

Changes in Accounting Standards and Policies

Changes in accounting standards and policies are discussed in Note 1. Business Overview and Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report.

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For our disclosures about market risk, please see Part II, Item 7A., "Quantitative and Qualitative Disclosures about Market Risk," in our Annual Report on Form 10-K for the year ended December 29, 2019. We believe there have been no material changes to the information provided therein.

~~Table of Contents~~

~~MASONITE INTERNATIONAL CORPORATION~~

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the fiscal quarter covered by this ~~Quarterly Report~~report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

3037

Table of Contents

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The information required with respect to this item can be found in Note 7. Commitments and Contingencies in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report and is incorporated by reference into this Part II, Item 1. Such information should be read in conjunction with the information contained under Part I, Item 3 "Legal Proceedings" included in our Annual Report on Form 10-K for the year ended December 29, 2019.

Item 1A. Risk Factors

You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results as set forth under Item 1A "Risk Factors" in our Annual Report on Form 10-K filed for the year ended December 29, ~~2019. In light of developments relating to the coronavirus ("COVID-19") pandemic occurring subsequent to the filing of~~2019, as supplemented by Part II. Item 1A "Risk Factors" in our ~~Annual~~Quarterly Report on Form ~~10-K, we are supplementing the risk factors discussed in our Annual Report with the following risk factor, which should be read in conjunction with the risk factors contained in our Annual Report.~~

~~The scale and scope of the recent coronavirus ("COVID-19") outbreak and resulting pandemic is unknown and is expected to adversely impact our business at least~~10-Q for the ~~near term. The overall impact on our business, operating results, cash flows and/or financial condition will likely be material.~~

Demand for our product is dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, consumer confidence, housing demand and availability of financing for home buyers. These factors, in particular consumer confidence, can be significantly adversely affected by a variety of factors beyond our control. The outbreak of COVID-19 has caused the shutdown of large portions of the international economy. The spread of COVID-19 has also caused significant volatility in U.S. and international debt and equity markets, which can negatively impact consumer confidence. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the global economy and consumer confidence. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact. As a result of COVID-19, we have closed certain locations as a result of government orders and furloughed employees, as well as significantly altered our operations, thereby reducing production. If the virus continues to cause significant negative impacts to economic conditions or consumer confidence, our results of operations, financial condition and cash flows may be materially adversely impacted and it may lead to higher than normal inventory levels, higher sales-related reserves, potential impairment of goodwill and other long-lived assets, a volatile effective tax rate driven by changes in the mix and earnings across our jurisdictions and an impact on the effectiveness of our internal controls over financial reporting.

The impact of the COVID-19 pandemic is rapidly evolving, and the continuation or a future resurgence of the pandemic could precipitate or aggravate the other risk factors that we identified in our 2019 Annual Report on Form 10-K, which in turn could further materially adversely affect our business, financial condition, liquidity, results of operations and profitability, including in ways that are not currently known to us or that we do not currently consider to present significant risks.quarterly period ended March 29, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Unregistered Sale of Equity Securities.

None.

(b) Use of Proceeds.

Not applicable.

During the three months ended ~~March 29,~~September 27, 2020, we ~~repurchased 567,271~~did not repurchase any of our common shares in the open market.

~~Table of Contents~~

Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
December 30, 2019, through January 26, 2020 700 $ 70.98 700 $ 143,995,757
January 27, 2020, through February 23, 2020 — — — 143,995,757
February 24, 2020, through March 29, 2020 566,571 61.28 566,571 109,276,756
Total 567,271 $ 61.29 567,271

We currently have in place a $600.0 million share repurchase authorization, stemming from three separate authorizations by our Board of Directors. The share repurchase programs have no specified end date and the timing and amount of any share repurchases will be determined by management based on our evaluation of market conditions and other factors. During Q1the first quarter of 2020, we implemented several actions to reduce our spending and more closely manage cash during this uncertain period relating to the COVID-19 pandemic, including temporarily suspending our share repurchase programs. The temporary suspension was lifted during the third quarter. As of ~~March 29,~~September 27, 2020, $109.3 million was available for repurchase in accordance with the share repurchase programs.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

3238

Table of Contents

Item 6. Exhibits

The following is a list of all exhibits filed or furnished as part of this report:


Exhibit No.			Description
~~10.5(a)*#~~		~~Waiver Agreement, dated as of April 8, 2020, by and between Masonite International Corporation and Howard C. Heckes~~
~~10.5(b)*#~~		~~Waiver Agreement, dated as of April 8, 2020, by and between Masonite International Corporation and Russell T. Tiejema~~
~~10.5(c)*#~~		~~Waiver Agreement, dated as of April 8, 2020, by and between Masonite International Corporation and James A. Hair~~
~~10.5(d)*#~~		~~Waiver Agreement, dated as of April 8, 2020, by and between Masonite International Corporation and Randal A. White~~
~~10.5(e)*#~~		~~Waiver Agreement, dated as of April 8, 2020, by and between Masonite International Corporation and Robert A. Paxton~~
31.1*			Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
31.2*			Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
32.1*			Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*			Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*			Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language ("Inline XBRL"): (i) the Registrant's Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended ~~March 29,~~September 27, 2020, and ~~March 31,~~September 29, 2019; (ii) the Registrant's Condensed Consolidated Balance Sheets as of ~~March 29,~~September 27, 2020, and December 29, 2019; (iii) the Registrant's Condensed Consolidated Statements of Changes in Equity for the three and nine months ended ~~March 29,~~September 27, 2020, and ~~March 31,~~September 29, 2019; (iv) the Registrant's Condensed Consolidated Statements of Cash Flows for the ~~three~~nine months ended ~~March 29,~~September 27, 2020, and ~~March 31,~~September 29, 2019; and (v) the notes to the Registrant's Condensed Consolidated Financial Statements
104*			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*	Filed or furnished herewith.
#	Denotes management contract or compensatory plan.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MASONITE INTERNATIONAL CORPORATION

(Registrant)

Date:

~~May 6,~~November 3, 2020

/s/ Russell T. Tiejema

Russell T. Tiejema

Executive Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

3339


	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
December 30, 2019, through January 26, 2020	700	$	70.98	700	$	143,995,757
January 27, 2020, through February 23, 2020	—	—		—	143,995,757
February 24, 2020, through March 29, 2020	566,571	61.28		566,571	109,276,756
Total	567,271	$	61.29	567,271